Suppose that the quantity of chain saws sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for chain saws is
A) 0.25.
B) 0.375.
C) 1.0.
D) 2.67.
E) 4.0.

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. In this case, the quantity demanded increased from 200 to 400, a 100% increase. The price decreased from $225 to $175, a 22.22% decrease. Therefore, the price elasticity of demand is 100% / 22.22% = 4.49. The closest answer choice is D) 2.67.

Suppose That the Quantity of Chain Saws Sold Increased from 200