The owner of an appliance store lowers the price of dishwashers from $400 to $350, which increases the number of dishwashers sold from 1,000 to 1,200. What is the elasticity of demand?
A) 1.25
B) 1.4
C) 1.36
D) 0.73

Question

Quizplus · Accepted Answer

Elasticity of demand = percentage change in quantity demanded / percentage change in price
Percentage change in quantity demanded = ((new quantity demanded - old quantity demanded) / old quantity demanded) x 100% = ((1200-1000) / 1000) x 100% = 20%
Percentage change in price = ((new price - old price) / old price) x 100% = ((350-400) / 400) x 100% = -12.5%
Elasticity of demand = (20% / -12.5%) = -1.6 (Note: we use the absolute value of the result)
Therefore, the elasticity of demand is 1.6, which is closest to answer C, 1.36.

The Owner of an Appliance Store Lowers the Price of Dishwashers