When the absolute price elasticity of demand equals 2.5, demand is
A) elastic.
B) unit-elastic.
C) inelastic.
D) undetermined without more information.

Question

Quizplus · Accepted Answer

When the absolute value of the price elasticity of demand is greater than 1, it implies that a percentage change in price leads to a larger percentage change in the quantity demanded. Thus, demand is said to be elastic. In this case, the absolute value of the price elasticity of demand is 2.5, which is greater than 1, so demand is elastic.

When the Absolute Price Elasticity of Demand Equals 2