Figure 5.3. The figure shows the wage rate and the quantity of labor supplied in an unskilled labor market.
-If a 50 percent increase in the price of pizza results in a 25 percent decrease in the quantity demanded of pizza, then the price elasticity of demand for pizza:
A)is equal to 0.5 and demand for pizza is inelastic.
B)is equal to 0.5 and demand for pizza is elastic.
C)is equal to 2 and demand for pizza is elastic.
D)is equal to 2 and demand for pizza is inelastic.
E)cannot be determined from the information provided.

Question

​Figure 5.3. The figure shows the wage rate and the quantity of labor supplied in an unskilled labor market. 
-If a 50 percent increase in the price of pizza results in a 25 percent decrease in the quantity demanded of pizza, then the price elasticity of demand for pizza:
A)is equal to 0.5 and demand for pizza is inelastic. 
B)is equal to 0.5 and demand for pizza is elastic. 
C)is equal to 2 and demand for pizza is elastic. 
D)is equal to 2 and demand for pizza is inelastic. 
E)cannot be determined from the information provided.

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is (-25% / 50%) = -0.5. The negative sign indicates the inverse relationship between price and quantity demanded, which is typical for most goods. A value of less than 1 in absolute terms indicates inelastic demand, meaning the quantity demanded is relatively unresponsive to price changes.

​Figure 53

Figure 53