suppose15 percent increase in the price of airlines causes a 10 percent decline in the quantity demanded, what is the elasticity of demand for airlines?
To find the elasticity of demand, we need to use the formula:
Elasticity of Demand = Percentage change in quantity demanded / Percentage change in price
Here, we are given that a 15% increase in price causes a 10% decline in quantity demanded. Let's calculate the percentage change values first.
Percentage change in quantity demanded = (change in quantity demanded / initial quantity demanded) * 100%
Given that the decline is 10%, the change in quantity demanded would be -10% (negative because it is a decline) and the initial quantity demanded is 100% (as a reference point).
Percentage change in quantity demanded = (-10% / 100%) * 100% = -10%
Similarly,
Percentage change in price = 15%
Now we can calculate the elasticity of demand:
Elasticity of Demand = (-10% / 15%) = -0.67
The negative result indicates that this is a price-elastic demand, meaning that a change in price affects the quantity demanded by a relatively larger percentage. A value less than 1 (-1 in this case) suggests that the percentage change in demand is less than the percentage change in price, indicating inelasticity.