Using average price and average quantity, calculate the price elasticity of demand if a price rise from $8 to $10 and decreases the quantity demanded from 20 units to 15 units. The price elasticity of demand equals
A) 2.5.
B) 1.29.
C) 0.78.
D) 0.06

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((15 - 20) / ((15 + 20) / 2)) * 100 = -28.57%. The percentage change in price is ((10 - 8) / ((10 + 8) / 2)) * 100 = 25%. Therefore, the price elasticity of demand is -28.57% / 25% = -1.1428, which is approximately 1.29 in absolute value.

Using Average Price and Average Quantity, Calculate the Price Elasticity