If the price of good A increases from $15 to $20 per unit and quantity demanded falls from 150 to 100 units, then by using the method of average values, we can calculate the absolute price elasticity of demand to be
A) 2.6.
B) 0.75.
C) 1.4.
D) 2.4.

Question

Quizplus · Accepted Answer

The absolute price elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((100 - 150) / ((100 + 150) / 2)) * 100 = -40%. The percentage change in price is ((20 - 15) / ((20 + 15) / 2)) * 100 = 28.57%. The elasticity is |-40% / 28.57%| = 1.4.

If the Price of Good a Increases from $15 to $20