Question

When the price of Gatorade is $2 per bottle, the quantity demanded is 500 bottles per at the local grocer. When the price falls to $1 per bottle, the quantity demanded increases to 1000. Given this information, the demand for Gatorade is

A) inelastic.

B) elastic.

C) unit elastic.

D) perfectly elastic.

Answer 1

Price elasticity of demand:

e= (∆Q/Q) /(∆p/p) =

e=((1000-500)/500)/((2-1)/2) = 2,

e>1 , so it is elastic

B) elastic , as percent change in quantity demand is more than percent change in prices.