If the price of Good X rises from $4 to $5, and the quantity demanded of it falls from 200 units to 180 units, the absolute value of the price elasticity of demand is:
A) 2.1.
B) 0.47.
C) 1.4.
D) 0.4.

Question

Quizplus · Accepted Answer

Using the midpoint formula for price elasticity of demand:

Elasticity = [(Q2 - Q1) / ((Q1+Q2)/2)] / [(P2 - P1) / ((P1+P2)/2)]

Elasticity = [(180-200)/((180+200)/2)] / [(5-4)/((5+4)/2)] = -20/190 /1/4.5 = -2.1/1

Taking the absolute value, we get 2.1.

Therefore, the absolute value of the price elasticity of demand is 0.47.

If the Price of Good X Rises from $4 to $5