If a company increased its price from $100 to $120 and the quantity demanded fell by 40 percent, the price elasticity of demand for this product is
A)2.
B)1/2.
C)−1/2.
D)−2.
E)4.

Question

Quizplus · Accepted Answer

Price elasticity of demand = (% change in quantity demanded)/(% change in price)
Given that the price increased from $100 to $120, which is a 20% increase. And the quantity demanded fell by 40%.
Therefore,
Price elasticity of demand = (-40%)/20% = -2
Hence, the answer is option D.

If a Company Increased Its Price from $100 to $120