If the price elasticity of demand for chicken is 2, then a 20 percent decrease in the price of chicken will lead to a:
A)10 percent decrease in the quantity demanded of chicken.
B)10 percent increase in the quantity demanded of chicken.
C)40 percent decrease in the quantity demanded of chicken.
D)40 percent increase in the quantity demanded of chicken.

Question

Quizplus · Accepted Answer

The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. So, if the price elasticity of demand is 2, and price decreases by 20 percent, then quantity demanded must increase by 40 (= 20 × 2)percent. Recall that price and quantity demanded move in opposite directions.

If the Price Elasticity of Demand for Chicken Is 2