Refer to the accompanying graph. What is the price elasticity of demand at point A?
A)3
B)2
C)0.33
D)0.2

Question

Refer to the accompanying graph. What is the price elasticity of demand at point A? 
A)3 
B)2 
C)0.33 
D)0.2

Quizplus · Accepted Answer

Given this demand curve (P = 8 - 0.5Qᵈᴾ⁼⁸⁻⁰.⁵Qᵈ ), it is possible to show that a quantity of 4 (in thousands), corresponds to a price of $6.  The formula for the price elasticity of demand is (P/Q)×  (1/|slope|).  So in this case, the price elasticity of demand is (6/4)×  (1/|0.5|)= 3.

Refer to the Accompanying Graph