Question

If the price of electricity falls by 10% per kilowatt hour, and the quantity demanded for electricity subsequently increases by 8%, the price elasticity of demand for electricity is _____ and would be classified as an _____ good.

a.) 1.25; elastic b.) 0.8;inelastic c.) 0.8;elastic d) 1.25;inelastic

Answer 1

Answer: b.) 0.8;inelastic

Step-by-step explanation:

Price elasticity of demand is defined as change in the quantity demanded of a particular product with changes in price .

Price Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price.

Given that

price of electricity falls by 10%

Demand for electricity subsequently increases by 8%.

W e have that

Price Elasticity of Demand = 8% / -10% = (-) 0.8 The negative sign shows that the price of electricity and demand are inversely proportional.

Price Elasticity of Demand = 0.8 since the Price elasticity is less than 1 , then it is inelastic