A good has a price elasticity of demand equal to 2.If an increase in supply lowers its price from $1.20 to $0.80,the percentage change in quantity demanded is
A)an increase of 80 percent.
B)a decrease of 80 percent.
C)a decrease of 40 percent.
D)an increase of 2 percent.
E)an increase of 40 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is: Percentage Change in Quantity Demanded / Percentage Change in Price. Here, the elasticity is 2, and the price change is from $1.20 to $0.80, which is a decrease of $0.40 on $1.20, or -33.33%. To find the percentage change in quantity demanded: 2 * (-33.33%) = -66.66%, which means an increase of 66.66% in quantity demanded. The closest option to this calculation is an increase of 80 percent.

A Good Has a Price Elasticity of Demand Equal to 2.If