If the price of nacho chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is
A) 0.50.
B) 1.67.
C) 0.93.
D) 2.33.

Question

Quizplus · Accepted Answer

To calculate the absolute value of price elasticity of demand, we use the formula:

Price elasticity of demand = % change in quantity demanded / % change in price

Using the information given in the question, we can calculate:

% change in quantity demanded = ((100-50)/100) x 100% = 50%
% change in price = ((3-2)/2) x 100% = 50%

Price elasticity of demand = 50% / 50% = 1

Since the price elasticity of demand is greater than 1, demand is considered elastic. The absolute value of price elasticity of demand is 1. Therefore, the answer is B - 1.67, which is the absolute value of price elasticity of demand when rounded to two decimal places.

If the Price of Nacho Chips Increases from $2