Price Elasticity of Demand Formula

Steps:

• Use the formula: PED = (% change in quantity demanded) / (% change in price).
• % change in price = +5%.
• % change in quantity demanded = -4%.
• PED = -4% / 5% = -0.8.

Why B is correct:

• -0.8 directly results from applying the PED formula, which measures responsiveness of quantity to price changes.

Why the others are wrong:

• A: -0.4 misapplies the formula by using half the quantity change.
• C: -1.25 inverts the ratio (5%/4%) and ignores the negative sign for demand.
• D: -2.0 doubles the quantity change relative to price.

Final answer: B