Question

The elasticity of demand for oil is –0.5 and the elasticity of supply is 0.20. If the demand for oil increases 10 percent, what happens to the price of oil?

Answer 1

Answer:

The price of oil will decreases by 20 percent.

Explanation:

Elasticity of demand =-0.5

% change in demand = 10%

% Change in price = % change in demand / Elasticity of demand

% Change in price = 10% / -0.5

% Change in price = -20%