Suppose a fall in the price of a good from $10 to $8 leads to an increase in quantity demanded from 20 to 24 units. The price elasticity of demand is
A)1.
B)9/11.
C)11/9.
D)2.0.
E)4.5/11.

Question

Quizplus · Accepted Answer

Price elasticity of demand (PED) = % change in quantity demanded / % change in price
Using the given values, we can calculate:
% change in quantity demanded = [(24-20)/20] x 100% = 20%
% change in price = [(8-10)/10] x 100% = -20%
PED = 20% / (-20%) = -1
However, we need to take the absolute value of PED since it is a negative value, giving us PED = 1. 
Option B provides the correct answer of 9/11 which can be derived as:
PED = [(24-20)/((24+20)/2)] / [(8-10)/((8+10)/2)] = (4/22)/(2/-1) = 9/11.

Suppose a Fall in the Price of a Good from $10