The figure above shows the demand curve for Starbucks latte.
-In in the figure above,when the price falls from $5 to $4,the price elasticity of demand is
A) 2.
B) 3.
C) 0.75.
D) 1.5.
E) 0.33.

Question

The figure above shows the demand curve for Starbucks latte.
-In in the figure above,when the price falls from $5 to $4,the price elasticity of demand is
A) 2. 
B) 3. 
C) 0.75. 
D) 1.5. 
E) 0.33.

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price has fallen by 20% (from $5 to $4) and we need to find the percentage change in quantity demanded.

At a price of $5, the quantity demanded is 50; at a price of $4, the quantity demanded is 65. Therefore, the percentage change in quantity demanded is (65-50)/50 * 100 = 30%.

So the price elasticity of demand is 30/20 = 1.5. Therefore, the best choice is (B).

The Figure Above Shows the Demand Curve for Starbucks Latte