If the quantity demanded of noodles increases by 3 percent when the price of noodles falls by 50 percent, what is the price elasticity of demand for noodles?
Is the demand for noodles
elastic, inelastic, or unit elastic?
Part 1
The price elasticity of demand for noodles is
>>> Answer to 2 decimal places.
Part 2
Based on the number you’ve calculated, the demand for
noodles
is _______.
A.elastic
elastic
B.inelastic
inelastic
C.unit elastic
To calculate the price elasticity of demand for noodles, we can use the following formula:
Price Elasticity of Demand (PED) = (% Change in Quantity Demanded) / (% Change in Price)
Given the information provided:
The quantity demanded of noodles increases by 3 percent.
The price of noodles falls by 50 percent.
Let’s calculate the price elasticity of demand:
% Change in Quantity Demanded = 3% % Change in Price = -50% (negative because the price has fallen)
Now, plug these values into the formula:
PED = (3% / -50%) = -0.06
So, the price elasticity of demand for noodles is approximately -0.06.
Part 2: Interpreting the Price Elasticity of Demand
Price elasticity of demand (PED) is used to determine whether a good is elastic, inelastic, or unit elastic based on its value. Here’s how we can interpret the result:
If |PED| > 1, it is considered elastic. This means that the quantity demanded is very responsive to price changes. In other words, a small change in price leads to a relatively large change in quantity demanded.
If |PED| < 1, it is considered inelastic. This indicates that the quantity demanded is not very responsive to price changes. In this case, a change in price has a relatively small impact on the quantity demanded.
If |PED| = 1, it is considered unit elastic. This means that the percentage change in quantity demanded is exactly equal to the percentage change in price. The total revenue remains constant as price changes.
In our calculation, we found that the price elasticity of demand (PED) for noodles is approximately -0.06. Since the absolute value of PED (|PED|) is less than 1 (|0.06| < 1), this indicates that the demand for noodles is inelastic.
So, the demand for noodles is B. inelastic.
In summary, the price elasticity of demand for noodles is -0.06, which falls into the inelastic category. This implies that consumers are not very responsive to price changes for noodles, and a 50% decrease in price only leads to a 3% increase in quantity demanded.
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