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14 January, 09:40

If the quantity demanded of personal computers increases by 5% every time the price of personal computers decreases by 10%, the price elasticity of personal computers is (remember to report the absolute value):

A. 4

B. 0.5

C. 1

D. 2

Answers (1)
  1. K
    14 January, 12:07
    0
    Price elasticity is the percentage change in the demand of a good, caused by 1% change in price. So the formula for price elasticity of demand is

    %change in demand of good divided by %change in price of the good

    In this case the price decreases by 10% and causes the demand to increase by 5% so we can find the Price elasticity by dividing 5 by 10

    5%/10% = 0.5

    The Price elasticity of personal computers is 0.5 which means that 1% change in price causes a 0.5% change in demand.
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