Suppose the quantity demanded of ice cream cones increases from 400 to 425 cones a day when the price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using the average method, is
A) 3.
B) 1.
C) 0.33.
D) 1.33.

Question

Quizplus · Accepted Answer

The elasticity of demand using the average method is calculated as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity is (425-400)/((425+400)/2) = 0.0617, and the percentage change in price is (1.25-1.50)/((1.25+1.50)/2) = -0.1818. The elasticity is 0.0617 / -0.1818 = -0.339, which is approximately 0.33 in absolute value.

Suppose the Quantity Demanded of Ice Cream Cones Increases from 400