Uber cuts the price of a ride in Los Angeles by 15%. Thereafter, the quantity of rides demanded rises by 45%. What is the absolute value of the price elasticity of demand for Uber rides?
A)0.33
B)-0.33
C)3
D)-3

Question

Quizplus · Accepted Answer

Price Elasticity of Demand (PED) = % Change in Quantity Demanded / % Change in Price

Here, the price has been reduced by 15%, so the % Change in Price is -15%.

The quantity of rides demanded has risen by 45%, so the % Change in Quantity Demanded is +45%.

PED = (+45%) / (-15%) = -3

Since the value of PED is greater than 1, the demand for Uber rides in Los Angeles is price elastic. Therefore, if the price of an Uber ride changes, the change in quantity demanded would be proportionally larger.

Uber Cuts the Price of a Ride in Los Angeles