If a firm can sell1,000 units of product A at $8 per unit and1,200 at $6, then
A)the price elasticity of demand is approximately 1.57.
B)A is a complementary good.
C)the price elasticity of demand is approximately 0.64.
D)A is an inferior good.

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). Here, the quantity demanded increases from 1,000 to 1,200 units (a 20% increase) when the price decreases from $8 to $6 (a 25% decrease). Thus, PED = -20% / -25% = 0.8 (not 0.64, my correction). The correct calculation should lead to an elasticity of 0.8, indicating that the demand is inelastic since the value is less than 1. My initial response contained an error in the calculation.

If a Firm Can Sell1,000 Units of Product a at $8