Suppose that if poor households have a price elasticity of demand for medical care of 0.50 and rich households have a price elasticity of demand for medical care of 0.25, then a price increase of 10% would lead to the poor households reducing their quantity demanded for medical care by
A) 2.5%.
B) 5%.
C) 25%.
D) 50%.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. Using this formula, we can determine that the poor households' quantity demanded for medical care would decrease by 5% (0.50 x 10%) in response to a 10% price increase.

Suppose That If Poor Households Have a Price Elasticity of Demand