Question

Suppose the per-unit price of a product changes from $105 to $95 and the quantity demanded changes from 9,500 units to 10,500 units. The absolute value for the price elasticity of demand for this product equals _____.

a. 1.5

b. 1

c. ∞

d. 0.5

Answer 1

Price elasticity of demand = [(q2-q1)/((q2+q1)/2)] / [(p2-p1)/((p2+p1)/2)]

Price elasticity of demand = [(10500-9500)/((10500+9500)/2)] / [(95-105)/((95+105)/2)]

= [1000 / 10000] / [-10 / 100]

= 0.1 / - 0.1

= -1

Absolute value of Price elasticity of demand = 1

option b is correct answer