Use diagrams to find the price elasticity of demand coefficient of good x at 2.3 and good y at 0.4.

The price elasticity of demand of good x at 2.3 and of good y at 0.4 indicates that good y is more of a necessity. Consumers do not change their buying behavior irrespective of how the price is altered by the seller.

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The price elasticity of demand coefficient of a good is given by the ratio of percentage change in demand and the percentage change in price. For most goods, the demand increases when there is a decrease in the price, and an increase in price leads to a fall in the...

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The price elasticity of demand coefficient of a good is given by the ratio of percentage change in demand and the percentage change in price. For most goods, the demand increases when there is a decrease in the price, and an increase in price leads to a fall in the demand. Goods that are a necessity have a low price elasticity of demand as consumers have to buy them irrespective of their price.

If a good x has a price elasticity coefficient of 2.3, the demand increases by 2.3 times the fall in the price. For instance, if the demand of the good was 100 units when it was priced at $20, the demand would increase to 560 if the price were decreased to $10.

On the other hand, good y has a price elasticity of demand of 0.4. In this case, if the demand were 100 when its price was $20, a decrease in price to $10 would lead to a new demand of 120 units.

These values indicate that good y is more of necessity than good x. Even a large rise in price will not lead to a substantial decrease in the demand and the demand remains relativity the same even if the price is decreased.

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