Answer (D) is correct . Demand is inelastic when the coefficient of elasticity is less than 1. The coefficient is calculated by dividing the percentage change in quantity demanded by ? the percentage change in price. The percentage change for both the numerator and denominator is the change over the range (the arc method). When price falls from $10 to $6, the coefficient is 0.571, calculated as follows: E d = [(800 – 600) ÷ (800 + 600)] ÷ [($10 – $6) ÷ ($10 + $6)] = (200 ÷ 1,400) ÷ ($4 ÷ $16) = 14.3% ÷ 25.0% = 0.571
Answer (A) is incorrect because Demand is inelastic only when the coefficient of elasticity is less than 1. The coefficient is calculated by dividing the percentage change in quantity ? demanded by the percentage change in price. The percentage change for both the numerator and denominator is the change over the range (the arc method). When price falls from $22 to $18, the coefficient is 3.333, calculated as follows: E d = [(200 – 100) ÷ (200 + 100)] ÷ [($22 – $18) ÷ ($22 + $18)] = (100 ÷ 300) ÷ ($4 ÷ $40) = 33.3% ÷ 10.0% = 3.333
Answer (B) is incorrect because Demand is inelastic only when the coefficient of elasticity is less than 1. The coefficient is calculated by dividing the percentage change in quantity ? demanded by the percentage change in price. The percentage change for both the numerator and denominator is the change over the range (the arc method). When price falls from $18 to $14, the coefficient is 2.667, calculated as follows: E d = [(400 – 200) ÷ (400 + 200)] ÷ [($18 – $14) ÷ ($18 + $14)] = (200 ÷ 600) ÷ ($4 ÷ $32) = 33.3% ÷ 12.5% = 2.667
Answer (C) is incorrect because Demand is inelastic only when the coefficient of elasticity is less than 1. The coefficient is calculated by dividing the percentage change in quantity ? demanded by the percentage change in price. The percentage change for both the numerator and denominator is the change over the range (the arc method). When price falls from $14 to $10, the coefficient is 1.2, calculated as follows: E d = [(600 – 400) ÷ (600 + 400)] ÷ [($14 – $10) ÷ ($14 + $10)] = (200 ÷ 1,000) ÷ ($4 ÷ $24) = 20.0% ÷ 16.7% = 1.2
|
