Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price.The price elasticity of demand for lemonade is therefore
A)0.6.
B)6.0.
C)1.97.
D)1.03.
E)impossible to compute unless we know the before and after prices.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the percentage change in quantity demanded is ((97,000 - 103,000) / 103,000) * 100 = -5.83%, and the percentage change in price is 10%. Thus, the elasticity is -5.83% / 10% = -0.583, which is approximately 0.6 in absolute value.

Suppose That the Quantity of Lemonade Demanded Falls from 103