Question

Assume that Dr. X charges $30 for a test and that last week he performed 120 tests. This week, he raised his charges to $32.50 for that test and only provided 110 tests. What is the approximate price elasticity of demand?

A. -1.1
B. -1.4
C. -3.7
D. -0.9

Answer 1

The price elasticity of demand is approximately -1.2, which is closest to option B (-1.4).

Step-by-step explanation:

The price elasticity of demand assesses how responsive the quantity sought is to price fluctuations. It is calculated as the percentage change in quantity divided by the percentage change in price. In this case, the price of the test increased from $30 to $32.50, which is an increase of $2.50 (8.33%). Meanwhile, the quantity of tests decreased from 120 to 110, which is a decrease of 10.00%. Therefore, the price elasticity of demand is:

Elasticity = (% change in quantity) / (% change in price)

Elasticity = (-10.00%) / (8.33%)

Elasticity ≈ -1.2

So, the approximate price elasticity of demand is -1.2, which is closest to option B (-1.4).