If the quantity demanded for good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the percentage change in quantity demanded is:

[(60-40)/((60+40)/2)]*100% = 50%

And the percentage change in price is:

[(7-9)/((7+9)/2)]*100% = -14.29%

So the price elasticity of demand is:

50% / -14.29% = -3.5

However, the question asks for the price elasticity of demand in this price range, i.e. between $9 and $7. Since the price decrease is 22.22% ((9-7)/((7+9)/2)), which is greater than 1, we know that the demand for good A is price elastic in this range. Therefore, the price elasticity of demand must have an absolute value greater than 1, which is consistent with the given value of 1.6. Therefore, the answer is A.

If the Quantity Demanded for Good a Increases from 40