Question

If demand increases by 50% due to an increase in price by 75%, calculate the price elasticity of demand.

Options

• 0.25

• 0.67

• 1.50

• 0.75

Answer 1

0.67

Explanation:

The price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good to a change in its price.

It is calculated using the formula:

`"Price Elasticity of Demand (PED)" = "Percentage Change in Quantity Demanded" / "Percentage Change in Price"​`

Given 

Percentage change in quantity demanded = +50%

Percentage change in price = +75%

PED = `(+50%)/(+75%)`

`= 50/75`

= 0.67