If the price of Good X rises from $4 to $5, and the quantity demanded of Good X falls from 200 units to 180 units, the price elasticity of demand is:
A) 2.1.
B) 0.47.
C) 1.4.
D) 0.4.

Question

Quizplus · Accepted Answer

Price elasticity of demand = % change in quantity demanded / % change in price

= [(200-180)/((200+180)/2)] / [(5-4)/((5+4)/2)]

= [-20/190] / [1/4.5]

= -0.47

Since the price elasticity of demand is negative, we ignore the negative sign and take the absolute value which is 0.47. Therefore, the correct answer is B.

If the Price of Good X Rises from $4 to $5