If the price of corn chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is
A) 0.50.
B) 1.67.
C) 0.93.
D) 2.33.

Question

Quizplus · Accepted Answer

Price elasticity of demand = absolute value of % change in quantity demanded / % change in price

% change in quantity demanded = ((50 million - 100 million) / ((50 million + 100 million) / 2)) x 100% = -50%

% change in price = ((3.00 - 2.00) / ((3.00 + 2.00) / 2)) x 100% = 50%

Price elasticity of demand = |-50% / 50%| = 1.67

Therefore, the absolute value of price elasticity of demand in that price range is 1.67.

If the Price of Corn Chips Increases from $2