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When the price is $2, quantity demanded is 10. When the price rises to $8, quantity...

When the price is $2, quantity demanded is 10. When the price rises to $8, quantity demanded falls to 2.

What is the value of the elasticity of demand? Is it elastic or inelastic?

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Answer #1

Elasticity is defined as the response of a good for a change in price. If the elasticity value is greater than 1 (absolute term) then it is called as elastic and if it is less than 1 (absolute term) then it is called as inelastic

So, it is calculated as percentage in Quantity demanded to percentage change in Price

Ed = ((Q2-Q1)/Q1)/ ((P2-P1)/P1) = ((2-10)/10)/((8-2)/2) = -80%/300% = -0.27

As the value of the elasticity is less than 1 in terms of absolute value the elasticity of demand is said to be inelastic

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