A 5 percent increase in the price of milk that results in a 2 percent decrease in the quantity of milk demanded yields a price elasticity of demand for milk of:
A) 0.5.
B) 0.4.
C) 1.0.
D) 1.4.

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, which in this case is -2% / 5% = -0.4. The negative sign indicates the inverse relationship between price and quantity demanded, but the magnitude (0.4) is what's typically reported for elasticity.

A 5 Percent Increase in the Price of Milk That