If the elasticity of demand for the latest American Idol album is 1.4, this means
A)few substitutes for the American Idol album exist.
B)a 1 percent increase in the price leads to a 14 percent decrease in quantity demanded.
C)a 10 percent decrease in the price leads to a 140 percent increase in quantity demanded.
D)a 5 percent increase in the price leads to a 7 percent decrease in quantity demanded.

Question

If the elasticity of demand for the latest American Idol album is 1.4, this means
A)few substitutes for the American Idol album exist.
B)a 1 percent increase in the price leads to a 14 percent decrease in quantity demanded.
C)a 10 percent decrease in the price leads to a 140 percent increase in quantity demanded.
D)a 5 percent increase in the price leads to a 7 percent decrease in quantity demanded.

Quizplus · Accepted Answer

The price elasticity of demand is given by the absolute value of the percentage change in quantity demanded divided by the percentage change in price. Here, |-7/5| = 1.4.

If the Elasticity of Demand for the Latest American Idol