Question

George has been selling 8,000 T-shirts per month for $8.00. When he increased the price to $9.00, he sold only 7,000 T-shirts.

Which of the following best approximates the price elasticity of demand?
A. -1.2467
B. -1.02
C. -0.5667
D. -1.1333

Answer 1

The correct answer is B

Step-by-step explanation:

The price elasticity of demand or PED is measures the responsiveness of the quantity demanded of a product to the changes in price for that product. The PED is calculated as follows,

PED = % change in quantity demanded / % change in price

or

PED = [(Q1 - Q0) / Q0] / [(P1 - P0) / P0]

Where,

• Q1 is the new quantity demanded and Q0 is the old quantity demanded
• P1 is the new price and P0 is the old price

PED = [(7000 - 8000) / 8000] / [(9 - 8) / 8]

PED = -1

As -1.02 is the closest to -1 So B is the correct answer.