Suppose the price of cherries decreases by 4 percent and consumers respond by increasing the quantity demand by 2 percent

Economics May 21, 2021

Suppose the price of cherries decreases by 4 percent and consumers respond by increasing the quantity demand by 2 percent. The price elasticity of demand for cherries is:
2.0 and demand is inelastic.
2.0 and demand is elastic.
0.5 and demand is inelastic.
0.5 and demand is elastic.

Expert Solution

Computation of Price Elasticity of Demand for Cherries:

Price Elasticity of Demand = Change in Quantity Demanded/Change in Price

= 2% / -4%

= -0.5

So, Price Elasticity of Demand for Cherries is 0.5 which is inelastic as it is less than 1.

Hence the correct option is 3rd "0.5 and demand is inelastic".

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