Elasticity of demand

Question

The elasticity of demand for apples is 0.58.  

a. Is the demand for apples elastic or inelastic? How do you know?

b. If the price of apples increases by 30%, what effect on demand would you expect? Be specific about whether demand would increase or decrease and by how much it would increase or decrease.

Answer 1

This is really an economics question, not calculus.

Elasticity means (% change in quantity demanded)/(% change in price). This is almost always negative. By convention, some people report the magnitude of demand elasticity instead of the actual negative elasticity.

If |elasticity|<1, this is called inelastic. A consequence is that price and revenue change in the same direction. If |elasticity|=0.58, that is less than 1, so demand is inelastic.

If the elasticity is 0.58, we can estimate that a 30% increase in price will result in a decrease in quantity demanded by 0.58*30%, a decrease of 17.4%.