If the price of a good falls by 10% and the percentage increase in the total amount consumers spend on the good is 10% then the good is
A)elastic.
B)inelastic.
C)unit elastic.
D)perfectly inelastic.

Question

Quizplus · Accepted Answer

When the price of a good falls by 10% and the percentage increase in the total amount consumers spend on the good is 10%, we can use the formula for price elasticity of demand to determine the elasticity of the good.

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

Here, we know that the price falls by 10%, so the % change in price is -10%. We also know that the total amount consumers spend on the good increases by 10%, which can be expressed as a % change in quantity demanded. Let's call this % change in quantity demanded "x".

So, we have:

10% = x / -10%

Solving for x, we get:

x = -1

This means that the % change in quantity demanded is a 1% decrease when the price falls by 10%. Since the % change in quantity demanded is greater than the % change in price, the good is elastic.

If the Price of a Good Falls by 10% and the Percentage