Assume economists have determined that the price elasticity of demand for housing in a given range of the demand curve is -1.75. Suppose that the price of housing increases by 10 percent.
PED = - 1.75
Percentage change in Price = 10 %
Price Elasticity of Demand = %age change in Quantity Demanded / %age change in Price
-1.75 = %age change in Quantity demanded / 10%
%age change in Quantity demanded = -17.5 %
Given the value of Price Elasticity of demand, the demand for housing is highly elastic (PED > 1)
With the change in Price at 10 % the Quantity demanded of Housing falls by 17.5 %
As demand for housing is higly elastic, the spending on housing decreases by 17.5% with 10 % increase in the price of Housing
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