The price of milk at the local grocery store is cut by 15%. In response to the price cut, the quantity of milk demanded falls by 5%. The absolute value of the price elasticity of demand for milk is _____, and the price elasticity of demand is _____.
A)3; elastic
B)3; inelastic
C)0.33; elastic
D)0.33; inelastic

Question

Quizplus · Accepted Answer

To calculate the price elasticity of demand using the percentage change method, we use the formula:

Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

Here, the price is cut by 15%, so the percentage change in price is -15%. The quantity demanded falls by 5%, so the percentage change in quantity demanded is -5%.

Elasticity = (-5%) / (-15%) = 0.33

Since the elasticity is less than 1, the demand for milk is inelastic.

The Price of Milk at the Local Grocery Store Is