0
$\begingroup$

Suppose that house prices increase by 10%, and the total quantity of homes purchased decreases by 8%. What is the elasticity of demand of housing? Interpret your answer in the context of a 1% change in home prices?

Is the answer just -0.8? Can someone explain this please, my professor really sucks.

$\endgroup$

closed as off-topic by Giskard, BKay, emeryville, Martin Van der Linden, Fix.B. Apr 26 '16 at 2:44

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "This question does not meet the standards for homework questions as spelled out in the relevant meta posts. For more information, see our policy on homework question and the general FAQ." – Giskard, BKay, emeryville, Martin Van der Linden, Fix.B.

2
$\begingroup$

Yes, the answer is -0.8.

Price Elasticity of Demand is defined as: $$e_{\langle p \rangle} = \frac{\mathrm{d} Q/Q}{\mathrm{d} P/P}$$

You're given : $$\mathrm{d} Q/Q = -0.08$$ and $$\mathrm{d} P/P = 0.1$$

ergo: $$-0.08/0.1 = -0.8$$

I'm reasonably certain that by "Interpret your answer," your professor means that s/he wants you to explain what that number means, in layman's terms.

You can always check the Wikipedia entry.

$\endgroup$

Not the answer you're looking for? Browse other questions tagged or ask your own question.