If the price of Coca-Cola increases from 40 cents to 50 cents per can and the quantity demanded decreases from 100 cans to 50 cans,then the value of the price elasticity of demand for Coca-Cola is _____
A)0.5.
B)0.25.
C)1.
D)3.
E)2.

Question

Quizplus · Accepted Answer

Price elasticity of demand (ED) = percentage change in quantity demanded / percentage change in price

Percentage change in quantity demanded = ((New quantity demanded - Original quantity demanded) / Original quantity demanded) x 100%
= ((50 - 100) / 100) x 100%
= -50%

Percentage change in price = ((New price - Original price) / Original price) x 100%
= ((0.50 - 0.40) / 0.40) x 100%
= +25%

ED = -50% / +25% = -2

Since the value of ED is negative, we ignore the minus sign and take the absolute value, which is 2. Therefore, the value of the price elasticity of demand for Coca-Cola is 2, option (D).

If the Price of Coca-Cola Increases from 40 Cents to 50