Question

When the product price falls from $40 to $30, the quantity demanded rises from 500 to 600 units. Using the simple formula, the price elasticity of demand in this range is:

a) -0.25.
b) -0.3.
c) -0.80.
d) -1.25.

Answer 1

The price elasticity of demand in this range is -0.80.

Step-by-step explanation:

The price elasticity of demand can be calculated using the formula:

% change in quantity demanded / % change in price

In this case, the price falls from $40 to $30, which is a 25% decrease in price. The quantity demanded rises from 500 to 600 units, which is a 20% increase in quantity demanded. Plugging these values into the formula:

-20% / -25% = 0.8

Therefore, the price elasticity of demand in this range is -0.80.