Suppose that the quantity demanded of paperback novels rises from 80 000 to 120 000 units per month when the price falls from $11 to $9 per unit. The price elasticity of demand for this product is
A) 1.
B) 1/3.
C) 2.
D) 2/3.
E) 3/2.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is:

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

Using the values given in the question:

% change in quantity demanded = ((120,000 - 80,000) / 80,000) * 100% = 50%

% change in price = ((9 - 11) / 11) * 100% = -18.18%

Using these values in the elasticity formula we get:

Price elasticity of demand = (50% / -18.18%) = -2.75

However, we need to take the absolute value of the result to get a positive value for elasticity, so:

Price elasticity of demand = 2.75

Since elasticity is greater than 1, the demand for this product is considered elastic. The best choice is therefore answer choice C, with an explanation as above.

Suppose That the Quantity Demanded of Paperback Novels Rises from 80