If the price of Good X rises from $4 to $5, and the quantity demanded of it falls from 200 units to 180 units, the absolute value of the price elasticity of demand is:
A) 2.1.
B) 0.47.
C) 1.4.
D) 0.4.

Question

Quizplus · Accepted Answer

Price Elasticity of Demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Using the midpoint formula:

% change in quantity demanded = ((Q2-Q1)/((Q2+Q1)/2)) x 100
                            = ((180-200)/((180+200)/2)) x 100
                            = -10%

% change in price = ((P2-P1)/((P2+P1)/2)) x 100
                 = ((5-4)/((5+4)/2)) x 100
                 = 11.11%

PED = |-10%/11.11%| = 0.47

Therefore, the absolute value of the price elasticity of demand is 0.47, which corresponds to option B.

If the Price of Good X Rises from $4 to $5