Demand for a good is elastic when the percentage change in quantity demanded is more than the percentage change in price. Price of hot dogs increase by 22% and demand falls by 25% hence, demand for hot dogs is elastic.

Elasticity of Demand

Elasticity of demand refers to the responsiveness of the quantity demanded of a good or service to a change in its price. It measures the degree to which demand changes in response to a change in price.

Formula for Elasticity of Demand

Elasticity of demand can be calculated using the following formula:

Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)

Interpretation of Elasticity of Demand

The value of elasticity of demand determines the type of demand for a good or service. The following are the different types of demand:

- Elastic Demand: When the value of elasticity of demand is greater than 1, it is said to be elastic demand. In this case, a small change in price leads to a larger change in the quantity demanded. It means that consumers are very sensitive to changes in price.
- Inelastic Demand: When the value of elasticity of demand is less than 1, it is said to be inelastic demand. In this case, a change in price leads to a small change in the quantity demanded. It means that consumers are not very sensitive to changes in price.
- Unitary Elastic Demand: When the value of elasticity of demand is equal to 1, it is said to be unitary elastic demand. In this case, a change in price leads to an equal change in the quantity demanded.
- Perfectly Elastic Demand: When the value of elasticity of demand is infinity, it is said to be perfectly elastic demand. In this case, a small change in price leads to an infinite change in the quantity demanded. It means that consumers are extremely sensitive to changes in price.
- Perfectly Inelastic Demand: When the value of elasticity of demand is zero, it is said to be perfectly inelastic demand. In this case, a change in price does not lead to any change in the quantity demanded. It means that consumers are not at all sensitive to changes in price.

Answer

In the given scenario, the price of hot-dogs increases by 22% and the quantity demanded falls by 25%. Using the formula for elasticity of demand, we can calculate the elasticity of demand for hot-dogs as follows:

Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)
Elasticity of Demand = (-25%) / (22%)
Elasticity of Demand = -1.14

As the value of elasticity of demand is greater than 1, it is said to be elastic demand. It means that consumers are very sensitive to changes in the price of hot-dogs. Therefore, the correct answer is option 'A' - Elastic.

Because elastic means a drastic change in demand with increase or decrease in price. And in this case demand of hot dog falls with increase in price it means demand for hot dog is elastic.