Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a tonne to $180 a tonne and quantity sold decreased from 800 tonnes to 240 tonnes.The absolute value of the price elasticity of demand is:
A)0)11
B)0)37
C)2)69
D)9)33

Question

Quizplus · Accepted Answer

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

% change in quantity demanded = (240-800)/800 = -0.7

% change in price = (180-120)/120 = 0.5

Absolute value of the price elasticity of demand = |-0.7/0.5| = 1.4/0.5 = 2.8

Rounded to one decimal place, the absolute value of the price elasticity of demand is 2.7, and the closest answer choice is C.

Suppose a Hurricane Decreased the Supply of Oranges So That