Question

Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to (in absolute value) :

Answer 1

1.29

Step-by-step explanation:

Percentage change in quantity demanded = (4 - 3) ÷ ((4 + 3)/2) = 0.285714285714286

Percentage change in price = (25,000 - 20,000) ÷ ((20,000 + 25,000)/2) = 5,000/20,000 = 0.222222222222222

Absolute value of the price elasticity of demand = 0.285714285714286 ÷ 0.222222222222222 = 1.29