If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, calculate the arc price elasticity.
A)-1.92
B)-1.64
C)-4
D)-2

Question

Quizplus · Accepted Answer

Arc elasticity formula:

[(Q2 - Q1)/((Q1 + Q2)/2)] / [(P2 - P1)/((P1 + P2)/2)]

Replacing the values from the question:

[(7,400 - 10,000)/((7,400 + 10,000)/2)] / [($3 - $2.50)/(($2.50 + $3)/2)]

= [-2,600/8,700] / [0.50/2.75]

= -0.2988 / 0.1818

= -1.642

The arc price elasticity is -1.642, which means that the pizza is elastic (elasticity > 1).

If the Price of a Slice of Pizza Rises from $2.50