If the price of a good increases by 10 percent,its quantity demanded drops by 50 percent.The price elasticity of demand is:
A)1.
B)0.2.
C)5.
D)2.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this situation, the percentage change in price is 10% and the percentage change in quantity demanded is -50%. Therefore, the price elasticity of demand is (-50%/10%) = -5. However, elasticity is typically reported as a positive number, so we take the absolute value of -5, which gives us an elasticity of 5. This means that the good is very responsive to changes in price, and a small increase in price leads to a large decrease in quantity demanded.

If the Price of a Good Increases by 10 Percent,its