Answer:
The correct answer to the following question, price elasticity of demand is 1.25% .
Explanation:
The formula that cab be used to calculate the price elasticity of demand -
% change in quantity demanded / % change in price
Where,
% change in quantity demanded = ( Q2 - Q1) / (Q2 + Q1) / 2 X 100
% change in price = (P2 - P1) /( P2 + P1) / 2 X 100
Here Q2 = 450, Q1 = 350, P2 = $1.80, P1 = $2.20
Putting the values in the formula =
% change in quantity demanded = ( Q2 - Q1 / Q2 + Q1) / 2 X 100
= ( 450 - 350) / (450 + 350) / 2 x 100
= 100 / (800) / 2 x 100
= 100 / 400 x 100
= 25%
% change in price = (P2 - P1) /( P2 + P1) / 2 X 100
= ($1.80 - $2.20 ) / ($1.80 + $2.20 ) / 2 x 100
= (-.4) / 4 / 2 x 100
= -.4 / 2 x 100
= - 20%
so, % change in quantity demanded / % change in price =
25% / -20%
= 1.25%