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Suppose that when the price of cigarettes decreases by 20 percent, the quantity demanded increases by 10 percent. The absolute value of price elasticity of demand for cigarettes is __________, making cigarettes an ____________ product (in this example).


Group of answer choices


0.6; elastic


1.7; inelastic


0.5; inelastic


1.7; elastic


2.0; elastic

Respuesta :

Answer:

0.5; inelastic

Explanation:

The formula to compute the price elasticity of demand is shown below:

Price elasticity of demand = (Percentage change in quantity demanded) ÷ (percentage change in price)

where,

Percentage change in quantity demanded = 10%

And, the percentage change in price = 20%

So the price elasticity of demand is

= (10%) ÷ (-20%)

= -0.5%

But the absolute value is 0.5%

Since the elasticity is less than 1 which reflect the price elasticity of demand is inelastic in nature

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