Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000.Along this portion of the demand curve, price elasticity of demand is
A)0.8.
B)1.2.
C)1.6.
D)8.0.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the percentage change in quantity is ((176,000 - 224,000) / 224,000) = -0.2143, and the percentage change in price is ((19.80 - 16.20) / 16.20) = 0.2222. The elasticity is |-0.2143 / 0.2222| = 0.964, which rounds to 1.2.

Suppose the Price of Local Cable TV Service Increased from $16.20