The price of a good rises by 10 % and the quantity demanded falls by 5 %. What is the absolute value of the price elasticity of demand?
Answer and explanation
Correct answer: A. 0.5
- Step 1: Elasticity = % change in quantity / % change in price. Step 2. 5 / 10 = 0.5. Answer: 0.5. Why not the others: 2: the ratio was inverted. -5: the percentages were subtracted. 50: the percentages were multiplied.
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