At a price of $4,a gas station.sold 100 gallons of gasoline per week.When the price rose to $4.5,only 80 gallons were sold per week.Using the initial-value method,the price elasticity of demand for gasoline at Greedy Inc.Gas Station is:
A)0.2.
B)0.16.
C)2.
D)1.6.

Question

Quizplus · Accepted Answer

The initial-value method formula for price elasticity of demand is:
E = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]

Plugging in the given values, we get:

E = [(80 - 100) / 100] / [(4.5 - 4) / 4] 
E = -0.2 / 0.125 
E = -1.6

Since elasticity is always positive, we take the absolute value:

E = 1.6

Therefore, the price elasticity of demand for gasoline at Greedy Inc. Gas Station is 1.6, which is closest to option B) 0.16 (after taking absolute value).

At a Price of $4,a Gas Station