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Question
Macroeconomics
Posted 3 months ago

When the price of fuzzy blankets decreased by 10%10 \%, Mr. Fields bought 20%20 \% more fuzzy blankets.

What is Mr. Fields' price elasticity of demand for blankets?
Choose 1 answer:
(A) unit elastic
(B) perfectly elastic
(c) Elastic
(D) perfectly inelastic
(E) inelastic
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Answer from Sia
Posted 3 months ago
Solution
a
Price Elasticity of Demand Formula: The price elasticity of demand is calculated using the formula Ed=%ΔQd%ΔPE_d = \frac{\%\Delta Q_d}{\%\Delta P}, where %ΔQd\%\Delta Q_d is the percentage change in quantity demanded and %ΔP\%\Delta P is the percentage change in price
b
Calculating Mr. Fields' Price Elasticity of Demand: Given that the price of fuzzy blankets decreased by 10%10\% and Mr. Fields bought 20%20\% more fuzzy blankets, we can plug these values into the formula to get Ed=20%10%=2E_d = \frac{20\%}{-10\%} = -2. The negative sign indicates the inverse relationship between price and quantity demanded, which is typical for price elasticity of demand
Answer
C) Elastic
Key Concept
Price Elasticity of Demand
Explanation
The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. If the absolute value of the elasticity is greater than 1, the demand is considered elastic. In this case, Mr. Fields' price elasticity of demand for blankets is -2, which is greater than 1 in absolute value, indicating elastic demand.

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