Answer (D) is correct . A product’s price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price. When price falls from $50 to $45, the coefficient is 3.8, calculated as follows: E d = [(150 – 100) ÷ (150 + 100)] ÷ [($50 – $45) ÷ ($50 + $45)] = (50 ÷ 250) ÷ ($5 ÷ $95) = 20.0% ÷ 5.26% = 3.8
Answer (A) is incorrect because The 10% decline in price divided by the 50% change in quantity demanded equals 0.20.
Answer (B) is incorrect because This figure assumes a 5% change in price. It also does not calculate the change over the sum of the endpoints of the range.
Answer (C) is incorrect because The percentage change in price is 0.10.
|
Using the arc method, the price elasticity of demand for this product when the price decreases from $50 to $45 is