Answer (D) is correct . The price elasticity is calculated by dividing the percentage change in quantity by the percentage change in price. The numerator and denominator are computed as the change over the midpoint range. Thus, the change in quantity of 500 units (1,750 – 1,250) divided by the range of 3,000 (1,750 + 1,250) produces a quantity increase of 1/6. The $.50 price decline divided by the price range of $1 produces a price decline of 50%. Dividing the quantity increase by the price change (1/6 ÷ .5) equals a price elasticity of 1/3.
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