Question

When the price of good "X" increases 20 percent (+20%), Harry decreases his quantity demanded of "X" by 25 percent while Meghan decreases her quantity demanded of "X" by 15 percent. Harry's demand for good "X" is (relatively inelastic / unitary elastic / relatively elastic) and Meghan's demand for good "X" is (relatively inelastic / unitary elastic / relatively elastic).

		A.  Relatively inelastic; relatively inelastic.
		B.  Relatively inelastic; relatively elastic.
		C.  Unitary elastic; relatively elastic.
		D.  Relatively elastic; relatively elastic.

Answer 1

Given that the price of good "X" , PX, increases 20 percent which results in decreasing the quantity demanded by 25 percent. Hence the price elasticity of demand is -25%/20% = - 1.25 which shows that demand is elastic as |ed| > 1. (relatively elastic)

For another consumer, this causes the quantity demanded to reduce by 15 percent. Hence the price elasticity of demand is -15%/20% = - 0.75 which shows that demand is inelastic as |ed| < 1. (relatively inelastic)

(This answer is not given in the choices perhaps because the embedded answers are wrong. Perhaps D is closest).