Suppose the quantity of root beer demanded decreases from 105,000 litres per week to 95,000 litres per week when the price rises by 5 percent. The price elasticity of demand
A)is 2.0.
B)is 0.5.
C)is 10.
D)is inelastic.
E)cannot be computed unless we know the original price and the new price.

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, the quantity demanded decreases by approximately 9.52% (10,000/105,000) when the price increases by 5%, resulting in an elasticity of 1.904, which is approximately 2.0.

Suppose the Quantity of Root Beer Demanded Decreases from 105,000