Question

When the price increases from $4 to $6 and the quantity demanded decreases by 2 units from 10 to 8, the price elasticity of demand is

a)-25

b)-1.5

c)-0.56

d)-2.5

e)cannot be determined from the information given

Answer 1

Price elasticity of demand = (Q2 - Q1)/((Q1+Q2)/2) / (P2- P1)/ ((P1+P2)/2)

here, Q1 = 10, Q2 = 8, P1 = 4, P2 = 6

Put values, we get

price elasticity of demand = (8-10)/((10+8)/2) / (6-4)/((6+4)/2)

= -0.555

= -0.56

Ans is c) -0.56