There was a 35 percent increase in demand for a product after the seller decreased its price by 14 percent. Therefore, the price elasticity of demand is ________.
A) 0.25
B) 0.4
C) -2.5
D) 2.5
E) -25

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the price decreased by 14% and the demand increased by 35%, so the calculation would be: (35%/(-14%)) = -2.5. Since price elasticity of demand is always a negative number, we take the absolute value and get 2.5. Therefore, the answer is D.

There Was a 35 Percent Increase in Demand for a Product