Suppose that if poor households have a price elasticity of demand for medical care of 0.70 and wealthy households have a price elasticity of demand for medical care of 0.10, then a 10% increase in the price of medical care would lead to poor households reducing their quantity demanded for medical care by
A) seven times the amount that wealthy household reduce their quantity demanded for medical care.
B) one-seventh the amount that wealthy households reduce their quantity demanded for medical care.
C) one-tenth the amount that wealthy households reduce their quantity demanded for medical care.
D) ten times the amount that wealthy household reduce their quantity demanded for medical care.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A higher elasticity indicates a greater response. Here, poor households have a higher elasticity (0.70) compared to wealthy households (0.10), meaning poor households' demand for medical care is more sensitive to price changes. Therefore, with a 10% price increase, poor households would reduce their demand by seven times more than wealthy households, as their elasticity is seven times greater (0.70 / 0.10 = 7).

Suppose That If Poor Households Have a Price Elasticity of Demand