Correct
Try again
Try again
Try again
Solution:
The price of hot dogs increases by 22% and the quantity of hot dogs demanded falls by 25%.
The question is asking which type of elasticity this scenario represents. Elasticity refers to the degree to which changes in price or income affect the quantity demanded or supplied.
In this case, we can calculate the price elasticity of demand using the formula:
Price elasticity of demand = (% change in quantity demanded) / (% change in price)
Using the numbers given in the text, we get:
Price elasticity of demand = (-25%) / (22%) = -1.14
Since the absolute value of price elasticity of demand is greater than 1, we can conclude that demand for hot dogs is elastic. This means that a change in price has a relatively large effect on the quantity demanded.
Correct option is (a)