A Product Priced at $5 Has Annual Sales of 1,000

Multiple Choice

A product priced at $5 has annual sales of 1,000 units.When price is reduced to $4,quantity increases to 1,250 units.Other things unchanged,the price elasticity of demand for the product is:

A) unitary.
B) elastic.
C) inelastic.
D) zero.
The change in quantity is (1250 - 1000) /(1250 + 1000) = 0.111 and the change in price is (4 - 5) /(4 + 5) = 0.111.Thus,elasticity is 0.111/0.111 = 1.0,which is unit elastic.