When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the absolute price elasticity of demand for soft drinks was approximately equal to
A) 0.15.
B) 0.60.
C) 0.73.
D) 1.67.

Question

Quizplus · Accepted Answer

The formula for calculating the absolute price elasticity of demand is:

% change in quantity demanded / % change in price

Using the information provided in the question, we can calculate the % change in quantity demanded and % change in price:

% change in quantity demanded = (85 - 100) / 100 = -0.15 = -15%

% change in price = (0.75 - 0.60) / 0.60 = 0.25 = 25%

Now, we can calculate the absolute price elasticity of demand:

Absolute price elasticity of demand = |-15% / 25%| = 0.6

Therefore, the best choice is C, 0.73, as it is closest to the calculated value of 0.6.

When the Price of a Soft Drink from the Campus