If a 4 percent increase in the price of a good leads to a 1 percent decrease in the quantity demanded, the price elasticity of demand for the good equals________ .
A)0.33
B)1.0
C)0.25
D)4.0

Question

Quizplus · Accepted Answer

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

Given: 
4% increase in price leads to a 1% decrease in quantity demanded
This can be written as:
(% change in quantity demanded) = -1%
(% change in price) = 4%

Substituting in the formula:
Price elasticity of demand = (-1% / 4%) = -0.25

Since price elasticity of demand cannot be negative, we take the absolute value:
Price elasticity of demand = 0.25

Therefore, the answer is C) 0.25.

If a 4 Percent Increase in the Price of a Good