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Question
Macroeconomics
Posted 3 months ago

When the price of spicy sauce was $10\$ 10, people bought 100 jars. When the price increased to $12\$ 12, people only bought 40 jars.

What is the price elasticity of demand for spicy sauce?
Choose 1 answer:
(A) 8.98
(B) 7.5
(C) -8.98
(D) 0.33
(E) 3
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Answer from Sia
Posted 3 months ago
Solution
a
Calculating Percentage Change in Quantity: The percentage change in quantity demanded is calculated using the formula %ΔQd=QnewQoldQold×100%\% \Delta Q_d = \frac{Q_{new} - Q_{old}}{Q_{old}} \times 100\%. Substituting the given values, we get %ΔQd=40100100×100%=60%\% \Delta Q_d = \frac{40 - 100}{100} \times 100\% = -60\%
b
Calculating Percentage Change in Price: The percentage change in price is calculated using the formula %ΔP=PnewPoldPold×100%\% \Delta P = \frac{P_{new} - P_{old}}{P_{old}} \times 100\%. Substituting the given values, we get %ΔP=121010×100%=20%\% \Delta P = \frac{12 - 10}{10} \times 100\% = 20\%
c
Calculating Price Elasticity of Demand: The price elasticity of demand is calculated using the formula Ed=%ΔQd%ΔPE_d = \frac{\% \Delta Q_d}{\% \Delta P}. Substituting the calculated values, we get Ed=60%20%=3E_d = \frac{-60\%}{20\%} = -3
Answer
(E) 3
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, calculated as the percentage change in quantity demanded divided by the percentage change in price. A negative value indicates an inverse relationship between price and quantity demanded, which is typical for most goods.

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