Multiple Choice
When calculating percentage change using the midpoint (arc elasticity) method, is the percent increase from 50 to 70 equal to the percent decrease from 70 to 50? Which statement is correct?
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4. Elasticity
Percentage Change and Price Elasticity of Demand
Multiple Choice
In the context of percentage change and price elasticity of demand, demand can be said to be inelastic when which condition holds for the price elasticity of demand?
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Verified step by step guidance1
Recall that the price elasticity of demand (\$E_d\$) measures the responsiveness of quantity demanded to a change in price, calculated as the percentage change in quantity demanded divided by the percentage change in price.
Understand that the absolute value of price elasticity of demand (\$|E_d|\$) is used because elasticity can be negative due to the inverse relationship between price and quantity demanded.
Identify the condition for inelastic demand: demand is inelastic when the absolute value of price elasticity of demand is less than 1, meaning quantity demanded changes proportionally less than the price change.
Express this condition mathematically as \$|E_d| < 1\$, which indicates that consumers are relatively unresponsive to price changes.
Recognize that if \$|E_d| = 1\$, demand is unit elastic, and if \$|E_d| > 1\$, demand is elastic, meaning consumers are more responsive to price changes.
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