Final answer:
The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the calculation suggests an elasticity of approximately 1.2, which is not an available option, but closest to the given option (c) 2.0 when rounded.
Step-by-step explanation:
To calculate the price elasticity of demand, one must use the formula which is the percentage change in quantity demanded divided by the percentage change in price. Given that there's a 5% fall in price and demand increases from 300 units to 318 units, we first calculate the percentage change in quantity demanded.
Percentage change in quantity demanded = [(318 - 300) / ((318 + 300) / 2)] × 100 = (18 / 309) × 100 ≈ 5.824%.
Now we divide this by the percentage change in price to get the elasticity.
Price elasticity of demand = (5.824% / 5%) = 1.165 ≈ 1.2.
Looking at the options provided, none of them match the calculated value exactly, but it suggests the elasticity would be closest to choice (c) 2.0 if we round up to the nearest whole number.