Question

Suppose that the quantity of DVD players sold increased from 200 to 400 when the price fell from $225 to $175. Over this price range, the absolute value of the price elasticity of demand for DVD players is
a. 0.25.
b. 0.375.
c. 1.0.
d. 2.67.
e. 4.0.

Answer 1

Answer:

Option D.

Explanation:

Given information:

$Q_1=200, Q_2=400$

$P_1=225, P_2=175$

Formula for price elasticity of demand is

$E_d=\frac{Q_2-Q_1}{P_2-P_1}\times \frac{P_1+P_2}{Q_1+Q_2}$

Substitute the given values in the above formula.

$E_d=\frac{400-200}{175-225}\times \frac{225+175}{200+400}$

$E_d=\frac{200}{-50}\times \frac{400}{600}$

$E_d=-\frac{8}{3}$

$E_d\approx -2.67$

Absolute value is

$|E_d|= |-2.67|=2.67$

The absolute value of the price elasticity of demand for DVD players is 2.67.

Therefore, the correct option is D.