When the price of a cookie is $4,Gary purchases 50 cookies.When the price of a cookie increases to $6,he purchases 20 cookies.Given the information,what is the absolute value of Gary's arc elasticity of demand for cookies?
A) 1.2
B) 2.14
C) 3.26
D) 5

Question

Quizplus · Accepted Answer

First, we need to calculate the percentage change in price and quantity of cookies purchased:

Percentage change in price = (6-4)/4 * 100% = 50%
Percentage change in quantity = (20-50)/50 * 100% = -60%

Using the formula for arc elasticity, we get:

Arc elasticity of demand = (|-60% / 50%|) / (1/2) = 2.4

Taking the absolute value, we get the answer as 2.4, which is closest to option B) 2.14.

When the Price of a Cookie Is $4,Gary Purchases 50