When the price of corn dogs is $0.50, 10,000 corn dogs are demanded. When the price of corn dogs is $1.20, 5,000 are demanded. What is the price elasticity of demand for corn dogs?

Question

Quizplus · Accepted Answer

Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
Using the midpoint formula:
Price elasticity of demand = ((5000-10000)/ ((5000+10000)/2)) / ((1.2-0.5) / ((1.2+0.5)/2))
Price elasticity of demand = (-5000/7500) / (0.35/0.85)
Price elasticity of demand = -0.67 / 0.41
Price elasticity of demand = -1.63

However, since the question asks for the absolute value of the price elasticity of demand, the answer is 1.63, which corresponds to choice B. This means that the quantity demanded is relatively responsive to changes in price, indicating that corn dogs are a relatively elastic good.

When the Price of Corn Dogs Is $0