If the price of a cola increased by 12 % and consumers responded by purchasing 20 % less cola, the absolute value of price elasticity of demand for cola would be
A) 0.20.
B) 0.80.
C) 1.67.
D) 1.80.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is percentage change in quantity demanded divided by percentage change in price. In this scenario, the price increased by 12% and quantity demanded decreased by 20%, so the percentage change in quantity demanded is -20%/100% = -0.2 and the percentage change in price is 12%/100% = 0.12.

Using the formula, we get:
Price elasticity of demand = |-0.2/0.12| = 1.67

Therefore, the best choice is C) 1.67

If the Price of a Cola Increased by 12