If the price of Good Y falls from $10 to $8, and the quantity demanded of it rises from 1,000 units to 1,200 units, the price elasticity of demand expressed in absolute value is:
A) 1.00.
B) 0.20.
C) 0.82.
D) 1.22.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is (% change in quantity demanded / % change in price).
Using the given information:
% change in quantity demanded = [(1,200 - 1,000) / 1,000] x 100% = 20%
% change in price = [(8 - 10) / 10] x 100% = -20%
Using the formula:
Price elasticity of demand = 20% / -20% = -1
Since we want the answer expressed in absolute value, we get:
Price elasticity of demand = |-1| = 1
Therefore, the price elasticity of demand expressed in absolute value is 1. However, since 1 is not an option, the closest option is C, which is 0.82.

If the Price of Good Y Falls from $10 to $8