If a 1% increase in the price of gummy bears causes gummy bear sales to decline by 0.4%, then the price elasticity of demand is
A) 2.5.
B) 0.04.
C) 0.4.
D) 4.

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. Here, it is -0.4% / 1% = -0.4. The negative sign indicates the inverse relationship between price and quantity demanded, but the magnitude (0.4) is what's typically reported for elasticity.

If a 1% Increase in the Price of Gummy Bears