Question on: JAMB Economics - 2012
If the price of an item increases by 8% while the quantity demanded falls from 1500 units to 1492 units, the demand is said to be
A
perfectly elastic
B
inelastic
C
elastic
D
perfectly inelastic
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Correct Option: B
To determine the elasticity of demand, we can use the following formula:
Price Elasticity of Demand (PED) = (% Change in Quantity Demanded) / (% Change in Price)
In this case:
- % Change in Price: 8%
- % Change in Quantity Demanded:
- Change in Quantity = 1492 - 1500 = -8 units
- % Change in Quantity = (-8 / 1500) * 100% = -0.53% (approximately)
Now, calculate the PED:
PED = -0.53% / 8% = -0.066
Interpreting the PED:
- If |PED| < 1
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