If price increases by 10 percent and quantity demanded decreases by 60 percent, the price elasticity of demand is:

If price increases by 10 percent and quantity demanded decreases by 60 percent, the price elasticity of demand is:

• A. 4.0
• B. 6.0
• C. 0.6
• D. 0.4

Answer: (B)

The main concept is that price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Here, quantity demanded falls by 60% when price rises by 10%. So the elasticity is (-60%)/(+10%) = -6. The magnitude is 6, indicating highly elastic demand. Since the appropriate numerical value is 6.0, that’s the correct choice. The negative sign just shows the inverse relationship between price and quantity demanded.

The main concept is that price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Here, quantity demanded falls by 60% when price rises by 10%. So the elasticity is (-60%)/(+10%) = -6. The magnitude is 6, indicating highly elastic demand. Since the appropriate numerical value is 6.0, that’s the correct choice. The negative sign just shows the inverse relationship between price and quantity demanded.