Question

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is a. 1. b. 1.80. c. 2.50. d. 0.55. e. 1.25

Answer 1

Answer:

c. 2.50.

Explanation:

Elasticity of demand is defined as the degree of responsiveness of quantity demanded to changes in the price of a commodity. It is calculated as percentage change in quantity demanded divided by percentage change in price.

Elasticity is considered elastic if the value is above one, and is means an increase in price results in significant decrease in demand.

When elasticity is less than 1 it is said to be inelastic and increase in price does not result in significant change in demand.

Percentage change in quantity= (30millon- 20 million)/20 million= 0.5

Percentage change in price= (100-80)/100

Percentage change in price= 20/100= 0.2

Elasticity= 0.5/0.2= 2.5