Question

Label demand as elastic, unit elastic, or inelastic for each scenario. Use the midpoint method when applicable to calculate the price elasticity of demand. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00 to $4.00 . As a result, the quantity sold drops from 20,000 to 15,000. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5 . Capital Metro decides to increase bus fare rates from $2.00 to $2.21 . Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Answer 1

Answer:

1. Contain Yourself!, a plastic container company, raises the price of its signature Lunchbox container from $3.00 to $4.00 . As a result, the quantity sold drops from 20,000 to 15,000 = unit elastic
2. Economists working for the United States have determined that the elasticity of demand for gasoline is 0.5 = inelastic
3. Capital Metro decides to increase bus fare rates from $2.00 to $2.21 . Consequently, the number of passengers who decide to take the bus in Austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day = elastic

Explanation:

1. The demand for unit elasticity is an intermediate situation between an elastic and an inelastic demand curve, in which the price elasticity is equal to one, which means that given variations in the price, the total income does not change (price per quantity). Eslasticity=1
2. Demand is inelastic when the percentage variation of the quantity demanded is less than the percentage variation of the price. Elasticity less than 1
3. Elastic demand is when a small variation in the price causes a more than proportional change in the quantity demanded. Elasticity more than 1