If price changes from $4.75 to $5.25 and quantity demanded changes from 1,025 to 975 units,then the price elasticity of demand is approximately:

Question

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Price elasticity of demand is the ratio of percentage change in quantity demanded to the percentage change in price.

Here, the initial price is $4.75 and the final price is $5.25, which represents a 10.53% increase [(5.25-4.75)/4.75 x 100].

The initial quantity demanded is 1,025 and the final quantity demanded is 975, which represents a 4.88% decrease [(975-1025)/1025 x 100].

Therefore, the price elasticity of demand is approximately 0.5 [(-4.88/10.53)]. A value less than 1 indicates that the good is relatively inelastic, meaning that a change in price has a proportionately smaller effect on the quantity demanded.

If Price Changes from $4