If the price of a DVD decreases by 50 percent and the quantity of DVDs demanded increases by 75 percent, the price elasticity of demand is _____ and is _____.
A) −1.5; inelastic
B) −1.5; elastic
C) −0.67; elastic
D) −0.67; inelastic

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is (% change in quantity demanded) / (% change in price). In this case, the price decreased by 50% and the quantity demanded increased by 75%. Using the formula: elasticity = (75% / -50%) = -1.5. Since the elasticity is greater than one (in absolute value), it is considered elastic. Therefore, choice B (-1.5; elastic) is the best answer.

If the Price of a DVD Decreases by 50 Percent