Suppose the price of a bus ticket rises from $2.75 to $3.75 and the number of tickets sold falls from 10 000 to 8500, the price elasticity of demand, in absolute term, is:
A) 0.527.
B)1.
C) -0.527.
D) -1.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the change in price is $1 ($3.75 - $2.75), which is a 36.36% increase from the original price ($1 / $2.75). The change in quantity demanded is 1500 tickets (10000 - 8500), which is a 15% decrease from the original quantity (1500 / 10000). The price elasticity of demand, in absolute terms, is the absolute value of the percentage change in quantity demanded divided by the percentage change in price, which is 0.15 / 0.3636 = 0.527.

Suppose the Price of a Bus Ticket Rises from $2