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Question
Price elasticity of demand of goods X is -2 and goods Y is -3. Which of the two goods is more price elastic and why?
Solution
According to the inverse relationship between price and quantity demanded, the elasticity of demand is negative. Here, the elasticity of demand for Good Y is −3 and Good X is −2. However, we will not consider the negative sign. Arithmetically, −2 is more than −3, but the elasticity of demand states that −3 is more elastic than −2. Therefore, the demand for Good Y is more elastic than Good X.
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