CIMA BA1 · Chapter 6 · Question 2 of 10
When the price of a product rises from $20 to $22, quantity demanded falls from 5,000 to 4,400 units. Using the original price and quantity as the base, what is the price elasticity of demand (ignoring the minus sign)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) 1.2, so demand is price elastic
Explanation
% change in quantity = (4,400 - 5,000) / 5,000 = -12%. % change in price = (22 - 20) / 20 = 10%. PED = -12% / 10% = -1.2. As the absolute value exceeds 1, demand is price elastic.
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