Price Elasticity of Demand Calculation

Steps:

• Percentage change in quantity demanded: ((500 - 1000) / 1000) × 100% = -50%.
• Percentage change in price: ((10 - 8) / 8) × 100% = 25%.
• Price elasticity of demand = |% change in quantity / % change in price| = |-50% / 25%| = 2.
• Since 2 > 1, demand is elastic.

Why A is correct:

• Elasticity greater than 1 means percentage change in quantity exceeds percentage change in price, per the elasticity formula.

Why the others are wrong:

• B: Unitary elasticity equals 1, but calculated value is 2.
• C: Less than 1 indicates inelastic demand, but value is 2.
• D: Zero elasticity means no quantity change, but quantity halved.

Final answer: A