Suppose the demand function for a good is expressed as Q = 100 - 4p.If the good currently sells for $10,then the price elasticity of demand equals
A) -1.5.
B) -0.67.
C) -4.
D) -2.5.

Question

Quizplus · Accepted Answer

Price elasticity of demand (PED) is calculated using the following formula:

PED = (% Change in Quantity Demanded)/(% Change in Price)

At the current price of $10, the quantity demanded is:

Q = 100 - 4p = 100 - 4(10) = 60

Now, if the price increases to $11, the quantity demanded will decrease to:

Q' = 100 - 4p' = 100 - 4(11) = 56

Thus, the % Change in Quantity Demanded is:

(% Change in Quantity Demanded) = (Q'-Q)/Q x 100% = (56-60)/60 x 100% = -6.67%

And the % Change in Price is:

(% Change in Price) = (p'-p)/p x 100% = (11-10)/10 x 100% = 10%

Now, using these values, we can calculate the price elasticity of demand as:

PED = (% Change in Quantity Demanded)/(% Change in Price) = (-6.67%)/(10%) = -0.67

Therefore, the correct answer is B.

Suppose the Demand Function for a Good Is Expressed as Q