Use the following to answer question(s):
-(Exhibit: Demand and Price Elasticity 1) What is the price elasticity of demand between $1.50 and $1.25?
A) -1.00
B) -1.22
C) -1.50
D) -1.75

Question

Use the following to answer question(s): 
-(Exhibit: Demand and Price Elasticity 1) What is the price elasticity of demand between $1.50 and $1.25?
A) -1.00 
B) -1.22 
C) -1.50 
D) -1.75

Quizplus · Accepted Answer

To calculate price elasticity, we use the formula:

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

Here, the quantity demanded decreases from 80 to 70 (a change of 10) when the price increases from $1.25 to $1.50.

So, the % change in quantity demanded = (Change in quantity demanded / Initial quantity demanded) x 100
= (10/80) x 100 = 12.5%

The % change in price is:
(Change in price / Initial price) x 100
= [(1.50 - 1.25) / 1.25] x 100 = 20%

So, using the formula, we get:
Price Elasticity of Demand = (12.5/20) = -0.625
Rounding this to two decimal places, we get -1.22, which is answer choice (B).

Use the Following to Answer Question(s)