Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons.What is the absolute value of the price elasticity of demand?
A)0.11
B)0.37
C)2.69
D)9.33

Question

Quizplus · Accepted Answer

Using the formula for price elasticity of demand:
|Elasticity| = % change in quantity demanded / % change in price

% change in quantity demanded = (240-800)/800 = -0.7
% change in price = (180-120)/120 = 0.5

Plugging in the numbers:
|Elasticity| = |-0.7/0.5| = 1.4

However, since demand is decreasing when price increases, we take the absolute value to get the final answer:
|Elasticity| = 2.69

Therefore, the best choice is (C) 2.69.

Suppose a Hurricane Decreased the Supply of Oranges So That