Hi, i attempted this questions as stated below. My ans is -1.77 and i believe it is inelasticity. Is there anything wrong with the answer? i check back the schweser notes and i read that: ‘the absolute value of the price elasticity of demand is less than 1.0, demand for product A is inelastic under price elasticity of demand’. Thanks:) Assume that for the average consumer, the quantity demanded for jeans increases from 5 to 7 pairs per year in response to a price decrease from $29 to $24 per pair. The respective price elasticity and relative elasticity of demand for jeans is best described by which of the following? A) -1.77; relatively elastic. B) -1.77; relatively inelastic. C) -2.32; relatively elastic Your answer: B was incorrect. The correct answer was A) -1.77; relatively elastic. The percentage change in quantity demanded is (7 - 5) / [(7 + 5) / 2] = 33.33% and the percentage change in price is (24 -29) / [(24 + 29) / 2] = -18.87%. Thus, price elasticity = 33.33% / -18.87% = -1.77. A good is considered to be elastic if the absolute value of price elasticity is greater than 1. In this case, the absolute value of the price elasticity of demand for jeans is 1.77, so the price elasticity for jeans is relatively elastic.
yes, that is correct, they’re talking about elasticity here you wrote it yourself above: ‘the absolute value of the price elasticity of demand is less than 1.0, demand for product A is inelastic under price elasticity of demand’. well, the ABSOLUTE VALUE of -1.77 is +1.77, and that is greater than one, according to elementary maths Forgetting about that, this is how you should look at elasticity: (we’re talking about ABSOLUTE values here) if the percentage change in quantity demanded is greater than the percentage change in price -> elastic if the percentage change in quantity demanded is less than the percentage change in price -> inelastic In a nutshell, if a change in price has a significant impact on quantity demanded we are talking about elasticity. That’s why we take the absolute value and compare it to one, that’s ‘significance’ as elasticity is concerned. If price changes by 20% and the demand moves by less than that (absolute values, again, it can go up and down but we want to see how much it moves, hence the use of absolute values) than the ratio of the changes will also be less than one and we are talking about inelastic demand. If price moves by 20% and demand moves by more than that, we have elastic demand. You can think in absolute values from the start, because |a/b| = |a|/|b|, if b is not 0. Example: I go bungee jumping twice a month, and it costs about 150 USD. If the price were to drop to 100$ I would go every week , so four times a month -> you have a 40% absolute change in price and a 100% change in demand, so it’s elastic. Btw, and do not get angry at me for saying this, you seem to not understand some basic econ concepts from what I see, so could you post some questions on this thread from the stuff that is not clear to you? We’ll try to help out.
You’re a sweet kid Andreea > > Btw, and do not get angry at me for saying this, > you seem to not understand some basic econ > concepts from what I see, so could you post some > questions on this thread from the stuff that is > not clear to you? We’ll try to help out.
beatthecfa Wrote: ------------------------------------------------------- > You’re a sweet kid Andreea Thanks 
oh i see. Thanks for the advice. Your words prompt me to read the LOS 13a again. So that means for price elasticity of demand , we always change it to absolute value. Thanks again:)
I had a really good way to remember elasticity when I was studying for level I: -When you have infinate elasticity (larger number) the graph is horizontal -When you have no elasticity the graph is vertical Now Imagine your underpants… If you pull the elastic from the sides there is a lot of give in the waistband, but if you pull from the top and bottom they hardly give at all. ie. elasticity is higher as the graph gets more horizontal! Hope that helps, it saved me on the test! (Just don’t take them out in the test center - that’s frowned upon!)
whoa… interesting analogy. haha… thanks for the advice. looks easy to remember 