When the price of a good increases by 50 percent, quantity demanded decreases by 2 percent. What is the price elasticity of demand?
A) 1/25
B) 2
C) 25
D) 50
E) It is impossible to determine from the information given.

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. Here, it is (-2% / 50%) = -1/25 or 1/25 in absolute value.

When the Price of a Good Increases by 50 Percent