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Answer to Question #25714 in Economics of Enterprise for Tammie Kish

Question #25714
The price of a laptop increases by 20% and there is a 40% drop in the quantity demanded, the price of a pack of cigarettes increases by 10% and there is a 5% drop in the quantity demanded, which of the two are more elastic and which is least elastic? and Why?
Expert's answer
The correct answer would be reversed.  The formula to calculate Price Elasticity of Demand is:
PEoD = (% Change in Quantity Demanded) / (% Change in Price)

Therefore:
Laptops = -40% / 20%  =  -2  =  2  =  Elastic
Cigarettes  =  -5% / 10%  =  -0.5  =  0.5  =  Inelastic

PEoD Value = 0 = perfectly inelastic
PEoD Value = 0 > v < 1 = inelastic
PEoD Value = 1 = unit elastic
PEoD Value = > 1 = elastic

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Comments

Assignment Expert
01.12.14, 17:58

Dear Derek, thank you for fixing us. The answer was corrected.

Derek
29.11.14, 03:12

The correct answer would be reversed. The formula to calculate Price Elasticity of Demand is:

PEoD = (% Change in Quantity Demanded) / (% Change in Price)

Therefore:

Laptops = -40% / 20% = -2 = 2 = Elastic
Cigarettes = -5% / 10% = -0.5 = 0.5 = Inelastic

PEoD Value = 0 = perfectly inelastic
PEoD Value = 0 > v < 1 = inelastic
PEoD Value = 1 = unit elastic
PEoD Value = > 1 = elastic

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