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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
Solution
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
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