If the value of the price elasticity of demand is 0.2, this means that:
A) a 20 percent decrease in price causes a 1 percent increase in quantity demanded.
B) a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded.
C) a 5 percent decrease in price causes a 1 percent increase in quantity demanded.
D) a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.
E) a 100 percent decrease in price causes a 200 percent increase in quantity demanded.

Question

Quizplus · Accepted Answer

A price elasticity of demand of 0.2 means that for every 1 percent decrease in price, there will be a 0.2 percent increase in quantity demanded. Therefore, a 5 percent decrease in price will cause a 1 percent increase in quantity demanded (5 x 0.2 = 1).

If the Value of the Price Elasticity of Demand Is