If the quantity demanded for Good A increases from 40 to 60 when price decreases from $9 to $7, price elasticity of demand in this price range is 1.6.

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 quantity demanded changes from 40 to 60, a 50% increase ((60-40)/40 = 0.5 or 50%), and the price changes from $9 to $7, a 22.22% decrease ((7-9)/9 = -0.2222 or -22.22%). The price elasticity of demand is thus 50% / 22.22% = 2.25 (not 1.6 as stated in the question, indicating a mistake in the initial statement).

If the Quantity Demanded for Good a Increases from 40