The price of apples falls by 5 percent and quantity of apples demanded increases by 6 percent. We conclude that the demand for apples is Group of answer choicesunit elastic.elastic.inelastic.perfectly elastic.
Question
The price of apples falls by 5 percent and quantity of apples demanded increases by 6 percent. We conclude that the demand for apples is Group of answer choicesunit elastic.elastic.inelastic.perfectly elastic.
Solution
The elasticity of demand is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the percentage change in quantity demanded is 6% and the percentage change in price is -5% (a decrease in price is represented as a negative percentage change).
So, the elasticity of demand = 6% / -5% = -1.2
The negative sign just indicates the inverse relationship between price and quantity demanded (as price falls, quantity demanded increases), which is always the case for demand.
The absolute value of elasticity is 1.2. If the absolute value is greater than 1, demand is considered elastic. If it's less than 1, demand is inelastic. If it's exactly 1, demand is unit elastic.
So in this case, the demand for apples is elastic.
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