Multiple choice

The price of hot dogs increases by 22% and the quantity of hot dogs demanded falls by 25%. This indicates that demand for hot dogs is

  1. elastic

  2. inelastic

  3. unitarily elastic

  4. perfectly elastic

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A Correct answer
Explanation

Price elasticity of demand = (% change in Q) / (% change in P) = -25% / 22% = -1.14 (absolute value > 1). When |elasticity| > 1, demand is elastic - quantity responds more than price. Inelastic is |elasticity| < 1, unitary is exactly 1, perfectly elastic is infinite. Since 1.14 > 1, hot dog demand is elastic (consumers are price-sensitive).

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