The price of Good X decreases by 22% and the quantity of Good X demanded increases by 20%. This indicates that demand for Good X is _________.

elastic

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inelastic

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unitary elastic

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perfectly elastic

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Solution

The correct option is B inelastic
$P r i c e e l a s t i c i t y o f d e m a n d = \frac{P e r c e n t a g e c h a n g e i n q u a n t i t y d e m a n d e d}{P e r c e n t a g e c h a n g e i n p r i c e}$
$\Rightarrow E_{d} = \frac{20}{- 22}$
$\Rightarrow E_{d} = - 0.909$
As $E_{d} < 1, d e m a n d i s r e l a t i v e l y i n e l a s t i c$
Hence, the correct option is B.

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The price of Good X decreases by 22% and the quantity of Good X demanded increases by 20%. This indicates that demand for Good X is _________.

The correct option is B inelasticPrice elasticity of demand=Percentage change in quantity demandedPercentage change in price⇒Ed=20−22⇒Ed=−0.909As Ed<1,demand is relatively inelasticHence, the correct option is B.