A 3 percent increase in the price of cotton leads to a 6 percent decrease in the quantity demanded of cotton. The absolute price elasticity of demand is
A) 3.
B) 2.
C) 0.5.
D) 0.33.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is (% change in quantity demanded / % change in price). In this case, we know that a 3% increase in price leads to a 6% decrease in quantity demanded. Using these values in the formula, we get:

-6% / 3% = -2

Since the absolute value of elasticity is always positive, we take the absolute value of -2, which is:

|-2| = 2

Therefore, the absolute price elasticity of demand is 2, which corresponds to choice B.

A 3 Percent Increase in the Price of Cotton Leads