Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to 80 cents per unit.The price elasticity of demand for this product is
A)0.5.
B)1.0.
C)1.5.
D)2.0.
E)4.0.

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. In this case, the quantity demanded rises from 90 units to 110 units, a 22.2% increase. The price falls from $1.20 to 80 cents, a 33.3% decrease. Therefore, the price elasticity of demand is 22.2% / 33.3% = 0.667, which is closest to choice A, 0.5.

Suppose That the Quantity of a Good Demanded Rises from 90