From the below; calculate the price elasticity of demand?

A. 5.0
B. 2.0
C. 1.0
D. 0.5

Correct Answer:

Option A = 5.0

Explanation

price elasticity of demand is calculated as the:

percentage change in quantity demanded/percentage change in price

Change in quantity = 500 – 400 = 100
% change = ​​​​​​100/100 = 1%

Change in price = 70 – 50 = 20
% change = 20/100 = 0.2%

price elasticity = 1/0.2 = 5