Homework Answers
Original price of office visit = P
New price of office visit = P (1+20%) = 1.2P
Original number of visits = Q
New number of visits = Q(1-10%) = 0.9Q
Average number of visits = (0.9Q+Q)/2 = 0.95Q
Average price = (1.2P+P)/2 = 1.1P
% Change in number of visits = ((0.9Q-Q)/0.95Q )*100 = -10.52%
% change in price = ((1.2P-P)/1.1P)*100 = 18.18%
Price elasticity of demand = % change in number of visits/% change in price
Price elasticity of demand = -10.52/18.18 = -0.58
As the price elasticity of demand is less than 1 which means it is inelastic.
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