When price is $5 per unit, quantity demanded is 12 units. When price is $6 per unit, quantity demanded is 8 units. The value of the absolute price elasticity of demand is approximately
A) 2.20.
B) 4.00.
C) 1.82.
D) 0.36.

Question

Quizplus · Accepted Answer

The absolute price elasticity of demand is calculated using the formula: |Ed| = |(ΔQ / Q_avg) / (ΔP / P_avg)|, where ΔQ is the change in quantity demanded, ΔP is the change in price, Q_avg is the average quantity demanded, and P_avg is the average price. Here, ΔQ = 8 - 12 = -4, ΔP = 6 - 5 = 1, Q_avg = (12 + 8) / 2 = 10, and P_avg = (5 + 6) / 2 = 5.5. Plugging these into the formula gives |Ed| = |(-4 / 10) / (1 / 5.5)| = |(-0.4) / (0.1818)| ≈ 2.20.

When Price Is $5 Per Unit, Quantity Demanded Is 12