If the price of a certain brand of sneakers falls from $27.50 to $22.50,and the quantity demanded by consumers increases from 15 to 25 pairs per week,then the price elasticity of demand is
A)0.25
B)1.00
C)2.75
D)1.50
E)2.50

Question

Quizplus · Accepted Answer

Price elasticity of demand (PED) is the percentage change in quantity demanded divided by the percentage change in price.

Here, the price has fallen by 18.18% (from $27.50 to $22.50), and the quantity demanded has risen by 66.67% (from 15 to 25 pairs per week).

So, the PED can be calculated as:

PED = percentage change in quantity demanded / percentage change in price

PED = 66.67% / 18.18%

PED = 3.67

Since the PED is greater than 1, we can say that the demand for this brand of sneakers is elastic. A 1% change in price led to more than 1% change in quantity demanded.

Thus, the best choice is E, with a PED of 2.50.

If the Price of a Certain Brand of Sneakers Falls