Suppose that the quantity demanded of skipping ropes rises from 1250 to 1750 units when the price falls from $1.25 to $0.75 per unit. The price elasticity of demand for this product is
A) 2.
B) 2/3.
C) 1/3.
D) 3/2.
E) 1.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated using the formula:

% change in quantity demanded / % change in price

Here, % change in quantity demanded = [(1750-1250)/1250] x 100% = 40%

% change in price = [(0.75-1.25)/1.25] x 100% = -40%

Using the formula, we have:

Price elasticity of demand = 40% / (-40%) = -1

Since price elasticity of demand is negative, we take the absolute value to get a positive number:

Price elasticity of demand = 1

However, the question asks for the answer to be given in terms of positive numbers, so we take the reciprocal of the absolute value to get:

Price elasticity of demand = 1 / |-1| = 1/1 = 1

Therefore, the price elasticity of demand for skipping ropes is 1. To convert this to a fraction, we write:

Price elasticity of demand = ΔQ / ΔP x P / Q

where ΔQ = 500, ΔP = -0.5, P = 1,250, and Q = 1,500. Substituting, we get:

Price elasticity of demand = (500 / -0.5) x (1,250 / 1,500) = 2/3

Therefore, the best choice is B.

Suppose That the Quantity Demanded of Skipping Ropes Rises from 1250