The price of milk at the local grocery store rises by 25%, and the quantity of milk demanded falls by 10%. The absolute value of the price elasticity of demand for milk is _____, and demand is _____.
A)2.5; elastic
B)2.5; inelastic
C)0.4; elastic
D)0.4; inelastic

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, it is 10%/25% = 0.4. Since the elasticity is less than 1, the demand is inelastic.

The Price of Milk at the Local Grocery Store Rises