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31 January, 07:38

Yesterday, the price of gloves was $4 a box, and Reena was willing to buy 10 boxes. Today, the price has gone up to $6 a box, and Reena is now willing to buy 8 boxes. Is Reena's demand for gloves elastic or inelastic? What is Reena's price elasticity of demand?

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  1. 31 January, 07:56
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    The PED is - 0.4 and the demand for Reena's gloves is inelastic.

    Explanation:

    The price elasticity of demand (PED) measures the responsiveness of demand to changes in price of the product. If the PED is more than 1 than the demand is said to be elastic while if it is less than 1 than demand is inelastic.

    PED = % change in Quantity demanded / % change in Price

    PED = [ (8 - 10) / 10] / [ (6 - 4) / 4]

    PED = - 0.4

    The demand for Reena's gloves is inelastic as PED is less than 1. The minus sign represents that it is a normal good.
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