Price Elasticity of Demand Calculation

Steps:

• PED = (% change in quantity demanded) / (% change in price); here, PED = -1.7 and % change in price = -5%.
• % change in quantity demanded = PED × % change in price = (-1.7) × (-5%) = +8.5%.
• Negative PED indicates inverse relationship: price decrease raises demand.
• Demand increases by 8.5%.

Why D is correct:

• Formula shows elastic demand (|PED| > 1) amplifies quantity response; price cut of 5% boosts demand by 8.5%.

Why the others are wrong:

• A: Incorrect direction (demand rises, doesn't fall) and wrong math (ignores elasticity multiplier).
• B: Wrong direction (ignores price-demand inverse link).
• C: Misapplies formula (uses 1/1.7 ≈ 0.59 factor instead of direct multiplication).

Final answer: D