At a price of $5, quantity demanded is 25 units, while at a price of $4,...
At a price of $5, quantity demanded is 25 units, while at a price of $4, quantity demanded is 35 units. What is the price elasticity of demand when price falls from $5 to $4?
|
a |
0.5 |
|
b |
2.5 |
|
c |
1.5 |
|
d |
0.2 |
Homework Answers
Price elasticity of demand in the market = % change in the demand / % change in the price.
% change in demand = 25-35 / 25 + 35
= -0.17
% change in price = 5 -4 / 5+4
= 1 / 9 = 0.11
Elasticity = 0.17 / 0.11 = 1.5. The answer is "C".
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