If the price of a cola increased by 12% and consumers responded by purchasing 24% less cola, the absolute value of price elasticity of demand for cola would be
A) 0.20.
B) 1.2.
C) 2.
D) 0.5.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is:

(price change / initial price) / (quantity change / initial quantity)

Using the information given, we can plug in the values:

price change = 12%
initial price = 100% (we can assume a starting price of 1 dollar/euro)
quantity change = -24%
initial quantity = 100% (again, assume starting consumption of 1 can)

So, the formula becomes:

(0.12 / 1) / (-0.24 / 1) = -0.5 / -0.24 = 2.08 (rounded to 2)

Since we're asked for the absolute value of the price elasticity, we discard the negative sign and get:

|2| = 2

If the Price of a Cola Increased by 12% and Consumers