If the absolute price elasticity of demand for good Y is 0.75, when there is a 30 percent increase in price, we can conclude that quantity demanded
A) has fallen by 35.0 percent.
B) has fallen by 10.4 percent.
C) has fallen by 22.5 percent.
D) has fallen by 40.0 percent.

Question

Quizplus · Accepted Answer

Using the formula for price elasticity of demand:

E = (% change in quantity demanded) / (% change in price)

We can rearrange it to solve for the % change in quantity demanded:

% change in quantity demanded = E x % change in price

Plugging in the given values:

0.75 = (% change in quantity demanded) / 0.30

% change in quantity demanded = 0.75 x 0.30 = 0.225 or 22.5%

Therefore, the quantity demanded has fallen by 22.5% with a 30% increase in price. The answer is C.

If the Absolute Price Elasticity of Demand for Good Y