Use the following information to answer questions
$$\begin{array} { | c | c | }
\hline & \begin{array} { c }
\text { Price Elasticity of } \
\text { Dernard }
\end{array} \
\hline \text { Good A } & 4.5 \
\hline \text { Good B } & .45 \
\hline \text { Good C } & .45 \
\hline \text { Good D } & 45 \
\hline
\end{array}$$
-When price increases 7% quantity demanded decreases 5%.What is the price elasticity of demand?
A)0.07
B)0.71
C)0.14
D)1.4

Question

Use the following information to answer questions 
 $$\begin{array} { | c | c | } 
\hline & \begin{array} { c } 
\text { Price Elasticity of } \
\text { Dernard }
\end{array} \
\hline \text { Good A } & 4.5 \
\hline \text { Good B } & .45 \
\hline \text { Good C } & .45 \
\hline \text { Good D } & 45 \
\hline
\end{array}$$
-When price increases 7% quantity demanded decreases 5%.What is the price elasticity of demand?
A)0.07
B)0.71
C)0.14
D)1.4

Quizplus · Accepted Answer

The price elasticity of demand can be calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, the percentage change in quantity demanded is -5% (because it decreased) and the percentage change in price is 7%. So, the price elasticity of demand is -5%/7% = -0.71. However, since elasticity is typically reported as positive, we take the absolute value and get 0.71. This matches the value for Good B, so the best choice is B. Goods C and D have very different elasticities, so they are not good choices. Good A has a much higher elasticity than the calculated value, so it is also not a good choice.

Use the Following Information to Answer Questions -When Price Increases 7% Quantity Demanded Decreases 5