If the quantity of cookies purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the absolute value of the price elasticity of demand for cookies is
A) 0.25.
B) 0.50.
C) 1.25.
D) 2.0.

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. Here, the quantity of cookies decreases by 30% and the price of oranges increases by 15%. The elasticity is |-30% / 15%| = 2.0.

If the Quantity of Cookies Purchased Decreases by 30 Percent