If the price of a good increases by 10 percent,its quantity demanded drops by 50 percent.The price elasticity of demand is:
A) 1.0
B) 0.2
C) 5.0
D) 2.0

Question

Quizplus · Accepted Answer

Price elasticity of demand = Percentage change in quantity demanded / Percentage change in price

Here, percentage change in price = 10%
Percentage change in quantity demanded = -50% (since the quantity demanded drops)

Substituting the values, we get:
Price elasticity of demand = (-50%/10%) = -5

Since price elasticity of demand is always measured in terms of absolute value, the answer is 5 or 5.0. Therefore, the best choice is C) 5.0.

If the Price of a Good Increases by 10 Percent,its