Total demand for a movie drops from 400 to 350 units when a theater operator increases the ticket price for a popular movie from $7 to $9.Price elasticity of demand (expressed as a positive number)equals ________.
A) 0.125
B) 0.53
C) 0.67
D) 2.50

Question

Quizplus · Accepted Answer

Price elasticity of demand (PED) formula is:

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

where 
Q1 = initial quantity demanded
Q2 = new quantity demanded
P1 = initial price
P2 = new price

So, PED = [(400-350)/((400+350)/2)] / [($7-$9)/(($7+$9)/2)]
PED = [50/375] / [-$2/($16)]
PED = 0.133 / -0.125
PED = -1.06 (using the absolute value, we get 1.06)

Therefore, the price elasticity of demand expressed as a positive number equals 1.06 or approximately 0.53 (because we round to two decimal places).

The best choice is B because it is the only one that is approximately equal to 0.53.

Total Demand for a Movie Drops from 400 to 350