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**CFA Practice Question**

Suppose the price of apples is $0.49 per lb, and quantity demanded is 10 M lbs. Following a decrease in price to $.44 per lb, the quantity demanded rises to 11 million lbs. What is the elasticity of demand (calculate using averages rather than straight changes)?

A. 0.8857

B. 0.7982

C. -0.8857

**Explanation:**Elasticity = % change in demand / % change in price = (1 M lbs/10.5 M lbs)/($0.05/$0.465)

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**User Contributed Comments**
3

User |
Comment |
---|---|

Kathkun |
In the textbook, the formula includes an absolute notation because it is common practice to state price elasticity of demand as a positive number. This question provides the option of the negative value, which is more correct. |

grew0001 |
I'm chalking this question to the "ignore" pile |

tferik |
Quantity Demanded is always downward sloping and thus negative. I should have looked at the answers first, I would have saved time. |