The price of cigars is $10, with a quantity demanded of 1,000 per day. If the price increases to $12, the quantity demanded declines to 800 per day. What is the absolute value of elasticity of demand?
A) 1.00
B) 0.82
C) 1.22
D) 12.2

Question

Quizplus · Accepted Answer

The elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((800 - 1000) / 1000) * 100 = -20%. The percentage change in price is ((12 - 10) / 10) * 100 = 20%. The elasticity is |-20% / 20%| = 1.00. However, the correct calculation should consider the midpoint method, which gives an elasticity of 1.22.

The Price of Cigars Is $10, with a Quantity Demanded