If the price of a product goes up by 10% and, as a result, the quantity demanded falls by 20%, how would you classify the demand?
Demand is elastic (elasticity greater than 1)
Price Elasticity of Demand (PED) = |% change in quantity demanded / % change in price|
\(PED = \dfrac{20\%}{10\%} = 2\)
Since PED = 2 > 1, demand is elastic. A 1% rise in price leads to a greater than 1% fall in quantity demanded, meaning consumers are highly responsive to price changes.
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