The following figure illustrates the market demand curve for solar-powered lights.

-Refer to the figure above.What is the absolute value of the arc elasticity of demand for solar-powered lights when their price decreases from $5 to $2?
A) 0.64
B) 1.25
C) 1.75
D) 2.00

Question

The following figure illustrates the market demand curve for solar-powered lights.
 
-Refer to the figure above.What is the absolute value of the arc elasticity of demand for solar-powered lights when their price decreases from $5 to $2?
A) 0.64 
B) 1.25 
C) 1.75 
D) 2.00

Quizplus · Accepted Answer

The absolute value of the arc elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the quantity demanded increases from 20 to 32, a 60% increase, and the price decreases from $5 to $2, a 60% decrease. Therefore, the absolute value of the arc elasticity of demand is 60% / 60% = 1.

The Following Figure Illustrates the Market Demand Curve for Solar-Powered