When the Blue Ocean Surfboard Company lowered the price of surfboards by 20%, it sold 10% more surfboards. The price elasticity of demand for surfboards is:
A)2.
B)1/2.
C)1.
D)20.

Question

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20%, it sold 10% more surfboards. The price elasticity of demand for surfboards is:
A)​2.
B)​1/2.
C)​1.
D)​20.

Quizplus · Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.

We can use the following formula to calculate the price elasticity of demand:

Price elasticity of demand = % change in quantity demanded / % change in price

Given that the Blue Ocean Surfboard Company lowered their price by 20% and sold 10% more surfboards, we can use the above formula to calculate the price elasticity of demand as follows:

Price elasticity of demand = (10% / 100%) / (-20% / 100%) = -0.5

Note that the negative sign indicates that demand is price elastic, which means that a change in price leads to a proportionately larger change in quantity demanded.

Taking the absolute value of the price elasticity of demand gives us 0.5, which is equivalent to 1/2. Therefore, the answer is B) 1/2.

When the Blue Ocean Surfboard Company Lowered the Price of Surfboards