Suppose that when the price of a good is $15, the quantity demanded is 40 units, and when the price falls to $6, the quantity increases to 60 units. The price elasticity of demand near a price of $6 and a quantity of 60 can be calculated as:
A) -5/6
B) -2
C) -2/9
D) -9/2

Question

Quizplus · Accepted Answer

Using the formula for price elasticity of demand:

E = (ΔQ/ΔP) * (P/Q)

Where: 
ΔQ = change in quantity demanded 
ΔP = change in price

At a price of $15 and a quantity of 40:

Q1 = 40 
P1 = 15

At a price of $6 and a quantity of 60:

Q2 = 60 
P2 = 6

ΔQ = Q2 - Q1 = 60 - 40 = 20 
ΔP = P2 - P1 = 6 - 15 = -9

Using the values above:

E = (ΔQ/ΔP) * (P/Q) 
E = (20/-9) * (6/60) 
E = -2/9

Therefore, the price elasticity of demand near a price of $6 and a quantity of 60 is -2/9.

Suppose That When the Price of a Good Is $15