Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Elastic
B
Inelastic
C
Unit elastic
D
Perfectly elastic
Understanding the Answer
Let's break down why this is correct
Answer
The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, the quantity demanded fell by 15 % when the price rose by 10 %, giving an elasticity of –1. 5. Because the absolute value of this elasticity is greater than 1, the demand is considered elastic. This means that consumers are quite responsive to price changes, so a price increase will lead to a proportionally larger drop in sales.
Detailed Explanation
When the price rises by 10% and the quantity sold falls by 15%, the drop in quantity is larger than the price rise. Other options are incorrect because The idea that demand is not sensitive to price is a misconception; Unit elastic means the percentage change in quantity equals the percentage change in price.
Key Concepts
Price Elasticity of Demand
Demand Sensitivity
Market Dynamics
Topic
Price Elasticity of Demand
Difficulty
medium level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1A company notices that when they increase the price of their product by 10%, the quantity demanded decreases by 20%. How can the company use this information regarding price elasticity of demand to make strategic pricing decisions in the future?
mediumEconomics
Practice
2
Question 2If the price of a luxury car increases by 10% and the quantity demanded decreases by 15%, what does this indicate about the price elasticity of demand?
mediumEconomics
Practice
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