A fall in the price of cabbage from $10.50 to $9.50 per bushel increases the quantity demanded from 18,800 to 21,200 bushels. The price elasticity of demand is
A) 0.80.
B) 1.20.
C) 1.25.
D) 8.00.

Question

Quizplus · Accepted Answer

The 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 ((21,200 - 18,800) / 18,800) * 100 = 12.77%. The percentage change in price is (($9.50 - $10.50) / $10.50) * 100 = -9.52%. The elasticity is 12.77% / 9.52% = 1.34, which is closest to 1.20.

A Fall in the Price of Cabbage from $10