Question

Aaron Chwatt purchases 20% more buttons per month when the price of buttons falls from $2 per pound to $1 per pound. Chwatt’s demand is:

A. inelastic

B.elastic

C.unitary elastic

D.indeterminate

Answer 1

Answer - inelastic

Reason - when the percentage of change in demand is less than the percentage of change in price, then the demand is inelastic. It is the case when the price elasticity of demand is between 0 and 1.

Here the percentage change is demand is 20% and the percentage change in price is 50% simply. So the price elasticity of demand is -

PED ° percentage change in demand ÷ percentage change in price

= 20% ÷ 50%

= 0.4

So the Chwatt's demand is inelastic.

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