When the price of scooters drops by 5%,the quantity demanded changes by 20%.You know that the price elasticity of demand for scooters is:
A) non-inelastic.
B) inelastic.
C) pro-elastic.
D) elastic.
E) non-elastic.

Question

Quizplus · Accepted Answer

The formula to calculate price elasticity of demand is (% change in quantity demanded)/(%change in price). In this case, we are given that the price drops by 5% and the quantity demanded changes by 20%. So, the % change in quantity demanded is 20%/100% = 0.2 and the % change in price is -5%/100% = -0.05. 
Using the formula, we get:
Price elasticity of demand = 0.2/-0.05 = -4 
Since the elasticity value is greater than 1, we can classify the demand for scooters as elastic. Therefore, the best choice is D, which indicates an elastic demand.

When the Price of Scooters Drops by 5%,the Quantity Demanded