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

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