If the price of ice cream changes by 30 percent and the quantity demanded changes by 75 percent, what is the absolute value of demand elasticity?
A) 2.5, so demand is inelastic
B) 0.4, so demand is inelastic
C) 0.4, so demand is elastic
D) 2.5, so demand is elastic

Question

Quizplus · Accepted Answer

The absolute value of demand elasticity can be calculated using the formula:
% change in quantity demanded / % change in price
In this case, % change in quantity demanded = 75% and % change in price = 30%. So,
Absolute value of demand elasticity = 75% / 30% = 2.5
Since demand elasticity is greater than 1, demand is elastic (i.e. a change in price leads to a relatively larger change in quantity demanded).

If the Price of Ice Cream Changes by 30 Percent