Question

When the product price falls from $90 to $80, and the quantity demanded rises from 600 to 700 units, the price elasticity of demand is:

a) 0.1
b) 1.0
c) 0.5
d) 10

Answer 1

The price elasticity of demand is 1.67, which indicates that the demand is price elastic.

Step-by-step explanation:

The price elasticity of demand is a measure of how sensitive the quantity demanded is to changes in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price decreased from $90 to $80, which is a 10% decrease in price. The quantity demanded increased from 600 to 700 units, which is a 16.67% increase in quantity demanded.

Using the formula, the price elasticity of demand is calculated as:

[(16.67%)/(10%)] = 1.67

Since the price elasticity of demand is greater than 1, it can be concluded that the demand is price elastic. This means that a decrease in price leads to a proportionally larger increase in quantity demanded.