If the price of steak rises from $6 to $10 per pound, and the quantity purchased falls from 90 to 70 pounds, the price elasticity of demand (in absolute value) is
A) 0.2.
B) 0.5.
C) 1.0.
D) 2.0.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity is (70-90)/90 = -0.222, and the percentage change in price is (10-6)/6 = 0.667. The elasticity is |-0.222/0.667| = 0.333, which is closest to 0.5.

If the Price of Steak Rises from $6 to $10