Price Elasticity of Demand Calculation

Steps:

• Percentage change in quantity demanded: ((20 kg - 40 kg) / 40 kg) × 100% = -50%.
• Percentage change in price: ((6 - 5) / 5) × 100% = 20%.
• Elasticity = |% change in quantity / % change in price| = |-50% / 20%| = 2.5.

Why C is correct:

• 2.5 matches the arc elasticity formula using initial values, where demand is elastic as the percentage change in quantity exceeds that in price.

Why the others are wrong:

• A: 0.4 inverts the ratio, confusing elasticity direction.
• B: 2.0 uses midpoint method incorrectly, understating the change.
• D: 20 reflects raw quantity drop without percentage adjustment.

Final answer: C