If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased, the price elasticity of demand for the tickets is
A) − 0.20.
B) − 0.40.
C) − 0.50.
D) − 2.50.

Question

Quizplus · Accepted Answer

We can use the price elasticity of demand formula to calculate the answer:

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

We are given that the price of airline tickets decreased by 20%, which means the % change in price is -20%. We are also given that the quantity of tickets purchased increased by 50%, which means the % change in quantity demanded is 50%.

Plugging these values into the formula, we get:

Price Elasticity of Demand = 50% / -20%
Price Elasticity of Demand = -2.5

Therefore, the price elasticity of demand for the tickets is -2.5.

If a 20 Percent Reduction in the Price of Airline