If the price of Pepsi-Cola increases from 40 cents to 50 cents per bottle and the quantity demanded decreases from 100 bottles to 50 bottles, then according to the averaging equation, the value of price elasticity of demand for Pepsi-Cola is:
A) 0.5.
B) 0.25.
C)1.
D) 3.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is % change in quantity demanded / % change in price.

Using the values given in the question: 
% change in quantity demanded = ((50-100)/100) * 100 = -50%
% change in price = ((50-40)/40) * 100 = 25%

Plugging these values into the formula gives: 
Price elasticity of demand = -50% / 25% = -2

Since price elasticity of demand is typically presented as an absolute value, the answer is 2. However, since the question asks for the value of the elastic coefficient, which is negative, the answer is -2.

Therefore, the best choice is D.

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