Answer:
The answer is 0.34 (inelastic)
Explanation:
The Price Elasticity of Demand (PED) is a measure of how much the quantity of a good or service changes, relative to the change in the price of the good or service.
Mathematically, it is represented as:
PED = (% change in quantity demanded) ÷ (% change of price)
% change in quantity demanded = [tex]\frac{Q_2-Q_1}{\frac{(Q_2+Q_1)}{2} } * 100[/tex]
% change in price = [tex]\frac{P_2-P_1}{\frac{(P_2+P_1)}{2} } * 100[/tex]
where:
Q₁ = initial quantity demanded = 70
Q₂ = new quantity demanded = 90
P₁ = initial price = $15
P₂ = new price = $7
Therefore:
% change in quantity demanded = [tex]\frac{90-70}{\frac{(90+70)}{2} } * 100 = \frac{20}{80} *100[/tex]
=25%
% change in price = [tex]\frac{7-15}{\frac{(7+15)}{2} } * 100 =\frac{-8}{11} * 100[/tex]
= -72.73%
∴ PED = (25%) ÷ (-72.73%) = -0.34.
since PED is less than 1, it is referred to as inelastic.
if PED is greater than 1, it is elastic
