If a 10% decrease in price for a good results in a 20% increase in quantity demanded, the price elasticity of demand is
A) 0.50.
B) 1.
C) 1.5.
D) 2.

Question

Quizplus · Accepted Answer

To calculate the price elasticity of demand using the midpoint formula, we need to divide the percentage change in quantity demanded by the percentage change in price.

Percentage change in quantity demanded = (20% - 0%)/(20% + 0%)/2 = 20%/20% = 1
Percentage change in price = (10% - 0%)/(10% + 0%)/2 = 10%/10% = 1

Price elasticity of demand = 1/1 = 1

Since the price elasticity of demand is greater than 1, the good is considered to be relatively elastic. A relatively elastic good means that a small change in price will have a greater impact on the quantity demanded.

If a 10% Decrease in Price for a Good Results