Question

The state of Texas recently saw a gasoline price increase of 5%, which brought about a fall in the quantity of gasoline purchased of 1%. The price elasticity of demand is equal to _____, and demand is described as _____.

Answer 1

The price elasticity of demand is equal to 0.2, and demand is described as inelastic.

What is the price elasticity of demand?

Price elasticity of demand measures how quantity demanded changes when there is a change in the price of a good.

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

Demand is inelastic when the price elasticity of demand is less than one.

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