If the price of oil goes up by 50 % and the quantity demanded goes down by 25%, the absolute value of the price elasticity of demand is
A) 0.25.
B) 0.50.
C) 0.75.
D) 1.00.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is (% change in quantity demanded / % change in price). In this case, the price of oil has increased by 50% and the quantity demanded has decreased by 25%. So, using the formula:
Price elasticity of demand = (% change in quantity demanded / % change in price)
= (-25% / 50%)
= -0.5
Taking the absolute value, we get 0.5, which corresponds to answer choice B.

If the Price of Oil Goes Up by 50