JAMB Economics 2012 Paper

Concept:Price elasticity of demand measures how strongly quantity demanded responds to a change in price.When the percentage change in quantity demanded is smaller than the percentage change in price, demand is inelastic.Explanation:Here, price increases by $8\%$.Quantity demanded falls from $1500$ to $1492$ units.The change in quantity is $1492 - 1500 = -8$ units.So, the percentage change in quantity demanded is:$$\%\Delta Q_d = \frac{-8}{1500} \times 100 = -0.53\%$$This means quantity demanded fell by only about $0.53\%$.Now compute the coefficient of price elasticity of demand:$$E_d = \frac{\%\Delta Q_d}{\%\Delta P} = \frac{-0.53}{8} = -0.067$$Using absolute values, $|E_d| = 0.067$.Because $0.067 < 1$, the percentage change in quantity demanded is far less than the percentage change in price.Therefore, the demand for the item is inelastic.Answer:B. inelastic