Calculate the price elasticity if a business maintains its current gross profit with a 5 percent price reduction and a 20 percent volume gain.
A)-15
B)-4
C)4
D)15
E)25

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, with a 20% increase in volume (quantity demanded) and a 5% decrease in price, the elasticity is -20% / -5% = 4. The negative signs cancel out, indicating that the demand is elastic, but the correct answer is expressed as a positive number, hence 4.

Calculate the Price Elasticity If a Business Maintains Its Current