When Picasso’s Gelato ice-creamery in Newtown raises the price of their triple waffle by 10 percent, quantity demanded falls by 5 percent. This indicates that: Group of answer choices Demand is elastic and own-price elasticity of demand equals -2. Demand is inelastic and own-price elasticity of demand equals -2. Demand is elastic and own-price elasticity of demand equals -½. Demand is inelastic and own-price elasticity of demand equals -½. None of the above.
Question
When Picasso’s Gelato ice-creamery in Newtown raises the price of their triple waffle by 10 percent, quantity demanded falls by 5 percent. This indicates that: Group of answer choices
Demand is elastic and own-price elasticity of demand equals -2.
Demand is inelastic and own-price elasticity of demand equals -2.
Demand is elastic and own-price elasticity of demand equals -½.
Demand is inelastic and own-price elasticity of demand equals -½.
None of the above.
Solution
The correct answer is: Demand is inelastic and own-price elasticity of demand equals -½.
Here's the step-by-step explanation:
-
The own-price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, it's -5% / 10% = -0.5.
-
The sign of the own-price elasticity of demand is always negative, reflecting the law of demand (i.e., if price increases, quantity demanded decreases).
-
If the absolute value of the own-price elasticity of demand is less than 1 (as it is in this case, since the absolute value of -0.5 is 0.5), demand is considered inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price.
Therefore, when Picasso’s Gelato ice-creamery in Newtown raises the price of their triple waffle by 10 percent and quantity demanded falls by 5 percent, this indicates that demand is inelastic and own-price elasticity of demand equals -½.
Similar Questions
Assume that consumers in Newtown experience an increase in income of 5 percent. If the quantity demanded of the triple waffles at Picasso’s Gelato ice-creamery decreases by 10 percent, this is consistent with:Group of answer choicesTriple waffles being a normal good and having an income elasticity of demand equal to 2.Triple waffles being a normal good and having an income elasticity of demand equal to 0.5.Triple waffles being an inferior good and having an income elasticity of demand equal to 2.Triple waffles being an inferior good and having an income elasticity of demand equal to 0.5.None of the statements in this list apply.
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.
Demand is said to be elastic when the: Group of answer choicespercentage change in quantity demanded is less than the percentage change in price.percentage change in quantity demanded is greater than the percentage change in price.change in quantity demanded is less than the change in price.change in quantity demanded is greater than the change in price.
If a firm can sell 3,000 units of product A at R10 per unit and 5,000 at R8, then:Multiple Choicethe price elasticity of demand is 2.25.A is a complementary good.D.A is an inferior good.the price elasticity of demand is 0.44.
A company doing marketing research finds that a 10 percent increase in its product's price would create a 5 percent decrease in the quantity demanded of its product. a. Based on this information, demand for the company's product is multiple choice 1perfectly inelastic.unit-elastic.perfectly elastic.inelastic.elastic. b. Using this same information, the company should ________ the price of its product. multiple choice 2raiselowernot change
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.