When the price of gas is $1.00 a litre,the quantity demanded is 1,750 litres.When the price of gas is $2.00 a litre,the quantity demanded is 1,250 litres.Calculate the price elasticity of demand when the price is $1.50 a litre.
A)2.0
B)5.0
C)0.5
D)20
E)1.5

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). From $1.00 to $2.00, the quantity demanded changes from 1,750 to 1,250, a decrease of 500 litres. The average quantity demanded is (1,750 + 1,250) / 2 = 1,500 litres, and the average price is ($1.00 + $2.00) / 2 = $1.50. The percent change in quantity demanded is (500 / 1,500) * 100 = 33.33%, and the percent change in price is (($2.00 - $1.00) / $1.50) * 100 = 66.67%. Therefore, PED = 33.33% / 66.67% = 0.5.

When the Price of Gas Is $1