If the price of a good increases from $20 to $25 and the quantity demanded declines from 15 to 10 units of the good,the price elasticity of demand is 5.

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.

Using the midpoint method, we have:

- Percentage change in price = [(25-20)/((25+20)/2)] * 100% = 25%
- Percentage change in quantity demanded = [(10-15)/((10+15)/2)] * 100% = -33.33%

Therefore, price elasticity of demand = (-33.33%/25%) = -1.33, which is less than 1. This means that the quantity demanded is inelastic and not very responsive to changes in price.

Hence, the statement is false.

If the Price of a Good Increases from $20 to $25