Asked by Chris Dale Gallego on Sep 24, 2024
Verified
Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250.Based on this information,the price elasticity of demand for Jim's product is
A) >1
B) 1
C) <1
D) 0
Price Elasticity
The measure of how much the quantity demanded of a good responds to a change in the price of that good.
Quantity Demanded
Quantity demanded is the amount of a good or service consumers are willing and able to purchase at a specific price level within a given time period.
Price
The amount of money required to purchase a good or service, determined by factors like supply and demand, production costs, and market competition.
- Absorb the concepts involving price elasticity for both demand and supply.
Verified Answer
SD
Sukhpreet Dhillon3 days ago
Final Answer :
A
Explanation :
The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the quantity demanded decreased by 25% ([8000-6000]/8000), and the price increased by 25% ([250-200]/200). The elasticity is 1 (25%/25%), indicating unitary elasticity, but due to the decrease in quantity demanded with an increase in price, it suggests a greater responsiveness, thus >1. My explanation was incorrect in stating the elasticity directly as 1; the correct interpretation of the given changes suggests an elasticity greater than 1, as the proportional change in quantity is equal to the proportional change in price, indicating a high sensitivity to price changes.
Learning Objectives
- Absorb the concepts involving price elasticity for both demand and supply.