Question

As the price of video games is raised from $20 to $25, their quantity demanded fell from 1.5 million copies to 1 million copies. The price elasticity of demand for video games is: What is the elasticity value?

Answer 1

The price elasticity of demand for video games is 1.333, reflecting that the demand for video games is elastic. Thus, as the price rises, the quantity demanded decreases more than proportionally.

Step-by-step explanation:

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

Percentage change in quantity demanded=[(change in quantity)/(original quantity)] × 100

To calculate the price elasticity of demand for video games:

1. Calculate the percentage change in quantity demanded: [(1,500,000 - 1,000,000) / 1,500,000] × 100 = 33.33%
2. Calculate the percentage change in price: [(25 - 20) / 20] × 100 = 25%
3. Divide the percentage change in quantity demanded by the percentage change in price: 33.33% / 25% = 1.333

The price elasticity of demand for video games is 1.333, indicating that demand is elastic. This means the percent of quantity demanded decreases more than the percent of increase in price.