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

Option D.

Step-by-step explanation:

Given information:

`Q_1=200, Q_2=400`

`P_1=225, P_2=175`

Formula for price elasticity of demand is

`E_d=(Q_2-Q_1)/(P_2-P_1)* (P_1+P_2)/(Q_1+Q_2)`

Substitute the given values in the above formula.

`E_d=(400-200)/(175-225)* (225+175)/(200+400)`

`E_d=(200)/(-50)* (400)/(600)`

`E_d=-(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.