Use the table below to answer the following questions.
Table 4.1.1
Demand schedule for good A.

-Refer to Table 4.1.1. The price elasticity of demand when the price rises from $6 a unit to $7 a unit is
A)1.0.
B)2.0.
C)2.6.
D)0.5.
E)1.3.

Question

Use the table below to answer the following questions.
Table 4.1.1
Demand schedule for good A.
 
-Refer to Table 4.1.1. The price elasticity of demand when the price rises from $6 a unit to $7 a unit is
A)1.0. 
B)2.0. 
C)2.6. 
D)0.5. 
E)1.3.

Quizplus · Accepted Answer

Using the formula for price elasticity of demand:

E = [(Q2-Q1)/(Q1+Q2)/2] / [(P2-P1)/(P1+P2)/2]

E = [(400-500)/(400+500)/2] / [(7-6)/(6+7)/2]

E = [-0.2 / 0.064]

E = -3.125

The absolute value of elasticity is 3.125, which is greater than 1, indicating that demand is elastic. Therefore, a 1% increase in price will lead to a more than 1% decrease in quantity demanded.

The given options are not in numerical format, but the closest numerical value to the calculated elasticity is 2.6, which is option C.

Use the Table Below to Answer the Following Questions