If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night,the arc price elasticity of demand for pizzas is:
A)0.67.
B)1.5.
C)2.0.
D)3.0.

Question

Quizplus · Accepted Answer

The arc price elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(100 - 700) / (100 + 700) / 2] / [(10 - 6) / (10 + 6) / 2] = (-600 / 400) / (4 / 8) = -1.5 / 0.5 = -3.0. The elasticity is 3.0 (absolute value).

If the Local Pizzeria Raises the Price of a Medium