price falls from $1.20 to $1.15, and the quantity demanded rises from 110 units to 120 units. what is the…

Explanation:

Step1: Calculate the percentage change in quantity demanded

The formula for percentage change in quantity demanded is $\frac{Q_2 - Q_1}{\frac{Q_2+Q_1}{2}}\times100%$. Here, $Q_1 = 110$, $Q_2=120$. So, $\frac{120 - 110}{\frac{120 + 110}{2}}\times100%=\frac{10}{\frac{230}{2}}\times100%=\frac{10}{115}\times100%\approx8.7%$.

Step2: Calculate the percentage change in price

The formula for percentage change in price is $\frac{P_2 - P_1}{\frac{P_2+P_1}{2}}\times100%$. Here, $P_1 = 1.20$, $P_2 = 1.15$. So, $\frac{1.15 - 1.20}{\frac{1.15+1.20}{2}}\times100%=\frac{- 0.05}{\frac{2.35}{2}}\times100%=\frac{-0.05}{1.175}\times100%\approx - 4.26%$.

Step3: Calculate price - elasticity of demand

The formula for price - elasticity of demand ($E_d$) is $E_d=\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$. So, $E_d=\frac{8.7%}{-4.26%}\approx - 2.04$. We take the absolute value, so $E_d\approx2.04$.

Answer:

A. 2.04