Question

When the price is $12 the quantity demanded is 50. When the price increases to $24 the quantity demanded decreases to 30. Calculate the price elasticity of demand.

Answer 1

PED = -0.4 or |0.4| in absolute terms

Step-by-step explanation:

price elasticity of demand (PED) = % change in quantity demanded / % change in price

• % change in quantity demanded = [(30 - 50) / 50] x 100 = -40%
• % change in price = [($24 - $12) / $12] x 100 = 100%

PED = -40% / 100% = -0.4 or |0.4| in absolute terms

the demand is price inelastic since |0.4| < 1

this means that the change in quantity demanded is proportionally less than the change in price.