If the price of a good is increased by 15 percent and the quantity demanded changes by 20 percent, then the price elasticity of demand is equal to:
A) 0.75.
B) approximately -0.33
C) approximately -1.33.
D) -1.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.

In this scenario, the price has increased by 15%, which is the percentage change in price.

The quantity demanded has changed by 20%, but we need to determine whether it has increased or decreased in order to calculate the absolute value of the percentage change.

If the quantity demanded decreased by 20%, then the percentage change in quantity demanded would be -20%.

Therefore, the price elasticity of demand would be -20% / 15% = -1.33 (rounded to two decimal places).

This means that the percentage change in quantity demanded is larger than the percentage change in price, indicating that the good is relatively elastic.

If the Price of a Good Is Increased by 15