Larissa is a famous attorney with a great reputation in court. She charges her clients $300 for each hour she spends working on their cases. If she earned $450,000 in hourly wages last year, and by raising her rates to $350 per hour her income increased to $490,000 what can we say about the elasticity of demand for Larissa's legal services?
A) It is approximately equal to 2.3.
B) It is approximately equal to 1.6.
C) It is approximately equal to 1.0.
D) It is approximately equal to 0.45.
E) It is approximately equal to 0.1.

Question

Quizplus · Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Larissa increased her rate from $300 to $350, a 16.67% increase. Her income increased from $450,000 to $490,000, an 8.89% increase. The elasticity is approximately 0.45, indicating inelastic demand.

Larissa Is a Famous Attorney with a Great Reputation in Court