Test Index

JAMB Economics 2014 Paper

Question : 5

Total: 49

Solution:

Concept:

Price elasticity of demand measures how much quantity demanded responds to a price change.

Explanation:

Elasticity of demand is calculated as:

E_d = \frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}

Here, price rises by

10\%

and quantity demanded falls by

5\%

So,

E_d = \frac{5\%}{10\%} = 0.5

Because

0.5 < 1

, the demand is inelastic.

This means the percentage change in quantity demanded is smaller than the percentage change in price.

Answer:

D. inelastic

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