Redbox rents DVDs for $1 per day via self-service kiosks located across the United States. In 2007, each kiosk averaged about 50 rentals per day. Suppose Redbox increases their daily price to $1.50. What is the price elasticity of demand if rentals decrease by 20 per day?
A) 1.25
B) 1.33
C) 1
D) 0.8

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. The quantity decreases from 50 to 30, a 40% decrease. The price increases from $1 to $1.50, a 50% increase. Elasticity = 40% / 50% = 0.8.

Redbox Rents DVDs for $1 Per Day Via Self-Service Kiosks