ECON1101 - Elasticity (1 Viewer)

[danielau]

Can someone help me interpret this answer in a way I can understand it:

'A price elasticity of demand of 0.5 means that a 1 per cent increase in the price of butter will lead to a 0.5 per cent fall in consumption. A 10 per cent reduction in butter consumption would, therefore, require a 20 per cent increase in price. If, however, the elasticity of demand for butter were higher (for example, 2), butter consumption would fall by 10 per cent in response to a smaller 10 per cent increase in the price of butter.'

Firstly, I thought a price elasticity of demand of 0.5 meant that it was INELASTIC, meaning a 1% increase in the price of butter will lead to a 0.5 increase in consumption? Also, assuming that the paragraph above is correct how do I calculate the amount of consumption would change (the 0.5 percent consumption decrease part)? Maybe I should give you the question this answer is for:

'If the aim is to reduce consumption of butter by 10 per cent and the price elasticity of butter is 0.5, how much would the price of butter need to be increased? What if the elasticity of demand of butter were instead equal to 2?'

 

[ZombieApocalypse]

if price elasticity is 0.5, and you want to reduce consumption by 10%, 0.5xprice= 10, which means the price needs to increase by 20%

if elasticity is 2, a 1% change in price= 2% change in quantity demanded, so to reduce consumption by 10%, increase price by 5%

 

[ZombieApocalypse]

Can someone help me interpret this answer in a way I can understand it:

'A price elasticity of demand of 0.5 means that a 1 per cent increase in the price of butter will lead to a 0.5 per cent fall in consumption. A 10 per cent reduction in butter consumption would, therefore, require a 20 per cent increase in price. If, however, the elasticity of demand for butter were higher (for example, 2), butter consumption would fall by 10 per cent in response to a smaller 10 per cent increase in the price of butter.'

Firstly, I thought a price elasticity of demand of 0.5 meant that it was INELASTIC, meaning a 1% increase in the price of butter will lead to a 0.5 increase in consumption? Also, assuming that the paragraph above is correct how do I calculate the amount of consumption would change (the 0.5 percent consumption decrease part)? Maybe I should give you the question this answer is for:

'If the aim is to reduce consumption of butter by 10 per cent and the price elasticity of butter is 0.5, how much would the price of butter need to be increased? What if the elasticity of demand of butter were instead equal to 2?'

sif people would buy more of something that costs more

 

[kaz1]

sif people would buy more of something that costs more

louis vuitton would be out of business