Question

When the price of CDs increased from $20.00 to $22.00, the quantity demanded decreased from 120 to 100 units. Using the initial-value approach, the absolute value) price elasticity of demand is O A. 1.91 OB. 0.52 O C. 1.67 OD. 0.60 Therefore, demand for CDs is considered to be

Answer 1

The correct option is C.) 1.67

Price elasticity of demand

= % change in quantity demanded / % change in price

% change in quantity demanded

=[ (Final value -Initial value)/Initial value]*100

=[ (100-120)/120 ] *100

% change in price

= [( Final value - Initail value) / Initail value ] *100

=[ (22-20)/20]

Price elasticity of value =( -20/120) ÷ (2/20)

= -1.67

Absolute value of price elasticity = 1.67

Therefore, demand for CDs is considered to be elastic.

( It is greater than 1)