1. A cut in price from Br.1.50 to Br.1.20 leads demand for a product rise by 10%. What would the price elasticity of demand be for this product? Interpret the result by identifying the type of good?

Inelastic good

Explanation:

Price elasticity of demand ( PED) is calculated as follows

P.E.D  =   % change in Quantity Demanded

               % change in price

=1.50 - 1.20 = 0.30

=$0.30/$1.50  x 100

=$0.2 x 100

=20%

The elasticity of demand

= 10%/20%

=0.5%

This good has an inelastic demand. The priced elasticity of demand is less than one. The demand is inelastic. A 20% change in price results in a smaller change in demand( 10%).

if you use only 25 for your entertainment and only 200 for the groceries that you really need and take out the 50 per month for the computer then that should be enough