A steel mill raises the price of steel by 20 percent, which results in a 7 percent reduction in the quantity of steel demanded. The price elasticity of demand is _____.

Question

Quizplus · Accepted Answer

Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
Here, the price of steel is increased by 20%, which results in a 7% reduction in quantity demanded.
So, percentage change in quantity demanded= -7%
percentage change in price= 20%
Price elasticity of demand = (-7%/20%)= -0.35
Since the elasticity value is negative, we ignore the sign and take the absolute value, which is 0.35.

A Steel Mill Raises the Price of Steel by 20