Question

Macroeconomics

Posted 3 months ago

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When the price of spicy sauce was $\$ 10$, people bought 100 jars. When the price increased to $\$ 12$, 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 $\% \Delta Q_d = \frac{Q_{new} - Q_{old}}{Q_{old}} \times 100\%$. Substituting the given values, we get $\% \Delta Q_d = \frac{40 - 100}{100} \times 100\% = -60\%$

b

Calculating Percentage Change in Price: The percentage change in price is calculated using the formula $\% \Delta P = \frac{P_{new} - P_{old}}{P_{old}} \times 100\%$. Substituting the given values, we get $\% \Delta P = \frac{12 - 10}{10} \times 100\% = 20\%$

c

Calculating Price Elasticity of Demand: The price elasticity of demand is calculated using the formula $E_d = \frac{\% \Delta Q_d}{\% \Delta P}$. Substituting the calculated values, we get $E_d = \frac{-60\%}{20\%} = -3$

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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