Apple, the consumer electronics giant, on Tuesday rolled out new versions of its popular iPod music player. CEO Steve Jobs also unveiled cheaper models of its Touch music player, a touchscreen-only device. An 8-gigabyte version now costs $230, down from $300. A 32-gigabyte model costs $400, down from $500. Calculate the price elasticity of demand for a 32 gigabyte Touch player if the quantity demanded increases from 850,000 to 950,000 the month after the price decrease.
A) 0.5
B) 1.5
C) 1
D) 0.75

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. In this case, the quantity demanded increased from 850,000 to 950,000, a 11.76% increase. The price decreased from $500 to $400, a 20% decrease. Therefore, the price elasticity of demand is 11.76% / 20% = 0.59, which is closest to choice A, 0.5.

Apple, the Consumer Electronics Giant, on Tuesday Rolled Out New