When the price of pizzas rises by 4 per cent, the quantity demanded decreases 10 per cent. What is the price elasticity of demand for pizza?
A) 0.4
B) 40.0
C) 25.0
D) 2.5
E) 10.0

Question

Quizplus · Accepted Answer

Price elasticity of demand = Percentage change in quantity demanded/Percentage change in price
Given, 
Percentage change in price = 4%
Percentage change in quantity demanded = -10%

Therefore, Price elasticity of demand = -10%/4% = -2.5

Since the price elasticity of demand is negative, we take the absolute value which gives us 2.5. Hence, the answer is D, 2.5.

When the Price of Pizzas Rises by 4 Per Cent