If the quantity demanded of personal computers increases by 5% every time the price of personal computers decreases by 10%, the price elasticity of personal computers is (remember to report the absolute value):

A. 4

B. 0.5

C. 1

D. 2

Price elasticity is the percentage change in the demand of a good, caused by 1% change in price. So the formula for price elasticity of demand is

%change in demand of good divided by %change in price of the good

In this case the price decreases by 10% and causes the demand to increase by 5% so we can find the Price elasticity by dividing 5 by 10

5%/10% = 0.5

The Price elasticity of personal computers is 0.5 which means that 1% change in price causes a 0.5% change in demand.