Economics – Price elasticity, income elasticity and cross elasticity of demand | e-Consult
Price elasticity, income elasticity and cross elasticity of demand (1 questions)
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Answer:
- Formula: PED = (% Change in Quantity Demanded) / (% Change in Price)
- Calculation: PED = (-2%) / (5%) = -0.4
- Interpretation: The absolute value of the PED is 0.4, which is less than 1.
- Conclusion: Demand for luxury cars is inelastic. This indicates that changes in price have a smaller impact on the quantity demanded. Luxury cars are often considered necessities for some consumers, leading to less price sensitivity.