If the price of coffee increases by 50% and the quantity demanded falls by 10%, then what is the price elasticity of demand for coffee?

a) 5

b) 2

c) 20

d) 1/5

1/5

Explanation:

The demand is the total quantity of goods and services that consumers are willing and ready to purchase at all possible prices.

The price of a product is one of the many factors that affect its demand. There exists an inverse relationship between the quantity demanded of a product and its price. The quantity demanded of product increases as the price falls and vice versa. So changes in the price will affect the quantity consumers will buy.

However, the extent to which a change in price of a product affects its quantity is the focus of price elasticity of demand. It measures the degree of responsiveness of quantity demand to a unit change in price.

It is calculated as % change in quantity demanded / % change in price.

So let us apply this formula to this question; the price elasticity of demand

= 10%/50% = 1/5