If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is
A) − 0.25.
B) − 0.50.
C) − 1.25.
D) − 2.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, we know that the percentage change in quantity demanded is -30% and the percentage change in price is +15%. Therefore, the price elasticity of demand can be calculated as:

E = -30% / (+15%) = -2

Since the elasticity is greater than 1, demand for oranges is considered to be elastic. A 15% increase in price led to a 30% decrease in quantity demanded, which indicates that consumers are highly responsive to changes in price.

If the Quantity of Oranges Purchased Decreases by 30 Percent