If the quantity demanded of root beer declines from 103,000 gallons per week to 97,000 gallons per week as the price increases by 10 percent, the price elasticity of demand is approximately:

If the quantity demanded of root beer declines from 103,000 gallons per week to 97,000 gallons per week as the price increases by 10 percent, the price elasticity of demand is approximately:

• A. 1.66
• B. 6.00
• C. 0.60
• D. 1.40

Answer: (C)

Price elasticity of demand shows how much the quantity demanded responds to a price change. Here, price goes up 10%, while quantity demanded falls from 103,000 to 97,000 gallons. The percentage change in quantity is about (97,000 − 103,000) / 103,000 ≈ −5.8% (roughly −6% if you use the midpoint method). Elasticity is the ratio of the quantity change to the price change: roughly (−6%) / (10%) = −0.60, so the absolute value is about 0.60. This means a 1% price increase would reduce quantity by about 0.6%. Since the elasticity is less than 1 in magnitude, demand is inelastic.

Price elasticity of demand shows how much the quantity demanded responds to a price change. Here, price goes up 10%, while quantity demanded falls from 103,000 to 97,000 gallons. The percentage change in quantity is about (97,000 − 103,000) / 103,000 ≈ −5.8% (roughly −6% if you use the midpoint method). Elasticity is the ratio of the quantity change to the price change: roughly (−6%) / (10%) = −0.60, so the absolute value is about 0.60. This means a 1% price increase would reduce quantity by about 0.6%. Since the elasticity is less than 1 in magnitude, demand is inelastic.