If the price of a good is increased by 15 percent and the quantity demanded falls by 20 percent, the price elasticity of demand is:
A) price elastic.
B) price inelastic.
C) unit price elastic.
D) normal.

Question

Quizplus · Accepted Answer

To determine the price elasticity of demand, we can use the formula:

% Change in Quantity Demanded / % Change in Price

In this case, the price increased by 15% and the quantity demanded decreased by 20%, so we can plug in those numbers:

-20% / 15% = -1.33

Because the price elasticity of demand is greater than 1 in absolute terms (-1.33), we know that the demand for the good is price elastic. This means that the percentage change in quantity demanded is greater than the percentage change in price.

If the Price of a Good Is Increased by 15