Question

19. Price elasticity of demand is defined as the a. Percentage change in quantity demanded induced by a 1 percent change in price. (Or, the percentage change in quantity demanded divided by the percentage change in price) b. Maximum amount consumers will pay for increased quantity. c. Percentage amount by which price can change without affecting the quantity demanded. Percentage increase in price induced by a decrease in demand. d. Percentage increase in price induced by a decrease in demand. e. Absolute change in quantity demanded divided by the absolute change in price. Use the following information to answer question 20. Price ($/bushel of wheat) Quantity Demanded (Millions of bushels) 2.7 3.00 3.30 3.60 2.6 2.5 20. What is the price elasticity of demand for wheat when the price of a bushel is between $3.30 and $3.60? a. 0.33 b. 0.42 c. 0.48 d. 0.55 e. 0.37

Answer 1

19. Price elasticity of demand is defined as the percentage change in quantity demanded induced by a 1% change in price (Or the percentage change in quantity demanded divided by the percentage change in price). Hence, option(A) is correct.

20. Price elasticity of demand = (% change in quantity demanded/ % change in price)

% change in quantity demanded= [(2.6-2.5)/2.6]100 =3.84%

% change in price= [(3.60-3.30)/3.30]100 = 9.09%

Price elasticity of demand = (3.84/9.09) = 0.42

Hence, option(B) is correct.