Tara buys four music CDs when the price is $10 and two CDs when the price is $14.Her price elasticity of demand is (using the average values method):
A)0.
B)1.
C)2.
D)3.
E)4.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). Using the average values method, the percentage change in quantity is ((2-4)/((2+4)/2)) = -2/3, and the percentage change in price is ((14-10)/((14+10)/2)) = 4/12. The elasticity is |-2/3 / 4/12| = 2.

Tara Buys Four Music CDs When the Price Is $10