A firm sold 100,000 pens at a price of $0.50 each. When it reduced its price to $0.40, 200,000 pens were sold. Its price elasticity (expressed as a positive number) is
A) 0.11.
B) 0.33.
C) 3.0.
D) 3.3.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the quantity increased by 100% (from 100,000 to 200,000) and the price decreased by 20% (from $0.50 to $0.40). Thus, the elasticity is 100% / 20% = 5.0, but since the options provided do not include 5.0, the closest correct calculation is 3.0.

A Firm Sold 100,000 Pens at a Price of $0