If a 50 percent increase in the price of pizza results in a 25 percent decrease
ID: 1193053 • Letter: I
Question
If a 50 percent increase in the price of pizza results in a 25 percent decrease in the quantity demanded of pizza, then the price elasticity of demand for pizza:
is equal to 0.5 and demand for pizza is inelastic.
is equal to 0.5 and demand for pizza is elastic.
is equal to 2 and demand for pizza is elastic.
is equal to 2 and demand for pizza is inelastic.
cannot be determined from the information provided.
a.is equal to 0.5 and demand for pizza is inelastic.
b.is equal to 0.5 and demand for pizza is elastic.
c.is equal to 2 and demand for pizza is elastic.
d.is equal to 2 and demand for pizza is inelastic.
e.cannot be determined from the information provided.
Explanation / Answer
Price Elasticity of demand = Percentage change in demand / Percentage change in price
= 25/50
= 0.5
since the elasticity of demand is less than the 1. hence this is inelastic demand
Correct option is (a)