Suppose you are given the following data on demand for a product.The price elasticity of demand when price decreases from $9 to $7 is:
A) 0.63.
B) 1.16.
C) 1.60.
D) 2.27. The change in quantity is (60 - 40)/(60 + 40)= 0.20,and the change in price is (7 - 9)/(7 + 9)= 0.125.Thus,elasticity is 1.60 and the product is elastic.

Question

Suppose you are given the following data on demand for a product.The price elasticity of demand when price decreases from $9 to $7 is: 
A) 0.63. 
B) 1.16. 
C) 1.60. 
D) 2.27. The change in quantity is (60 - 40)/(60 + 40)= 0.20,and the change in price is (7 - 9)/(7 + 9)= 0.125.Thus,elasticity is 1.60 and the product is elastic.

Quizplus · Accepted Answer

The calculation of price elasticity of demand when price decreases from $9 to $7 is:

Elasticity = ((Q2-Q1)/(Q2+Q1))/((P2-P1)/(P2+P1))

Where, 
Q1 = 40 (initial quantity demanded) 
Q2 = 60 (new quantity demanded) 
P1 = $9 (initial price) 
P2 = $7 (new price)

Plugging in the values, we get:

Elasticity = ((60-40)/(60+40))/((7-9)/(7+9)) 
Elasticity = 0.2/-0.125 
Elasticity = -1.6

Since the price elasticity of demand is negative, we take the absolute value to get 1.6. Since this value is greater than 1, we can say that the product is elastic.

Therefore, the best choice is C, with an elasticity of 1.60.

Suppose You Are Given the Following Data on Demand for a Product.The