Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 10 percent increase in the price of root beer. The price elasticity of demand is
A) 0.60.
B) 1.40.
C) 1.66.
D) 6.00.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the percentage change in quantity demanded is ((97,000 - 103,000) / 103,000) * 100 = -5.83%. The percentage change in price is 10%. Thus, the elasticity is -5.83% / 10% = -0.583, which is approximately 0.60 in absolute value.

Suppose That the Quantity of Root Beer Demanded Declines from 103,000