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If the demand for bacon is relatively elastic, a 10 percent decline in the price of...

If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will

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Answer #1

Elasticity measures the percentage change in quantity demanded for a given percentage change in price of the product. Here the demand is relatively elastic which means the absolute value of elasticity is greater than 1. Hence we have a situation where

ed > 1 and ed = % change in QD/% change in P

Now % change in P = -10%. Elasticty value will be greater than 1 but will be in negative

% change in QD/-10% > -1

% change in QD > 10%

Hence a 10 percent decline in the price of bacon will increase its quantity demanded by more than 10 percent.

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