If quantity demanded for sneakers falls by 10% when price increases 25% we know that the absolute value of the own-price elasticity of sneakers is:
A)2.5.
B)0.4.
C)2.0.
D)0.27.

Question

Quizplus · Accepted Answer

The formula for elasticity is: 
Elasticity = (% change in quantity demanded) / (% change in price)

We are given that % change in price is +25% (an increase). We are also given that % change in quantity demanded is -10% (a decrease).

Plugging these numbers into the formula: 
Elasticity = (-10%)/(+25%) 
Elasticity = -0.4

The absolute value of this elasticity is 0.4. Therefore, the answer is B.

If Quantity Demanded for Sneakers Falls by 10% When Price