If 20% increase in the price of a good leads to a 60% decrease in the quantity demanded, then what is the price elasticity of demand?
A)30.
B)3.
C)1/3.
D)1/6.

Question

Quizplus · Accepted Answer

Price elasticity of demand can be calculated using the following formula:
% change in quantity demanded / % change in price
Here, we are given that there is a 20% increase in price which leads to a 60% decrease in quantity demanded. 
Substituting the values in the formula, we get:
-60% / 20% = -3
Since elasticity values are usually positive, we take the absolute value of the result which gives us 3. Therefore, the price elasticity of demand is 3.

If 20% Increase in the Price of a Good Leads