If the price elasticity of demand is equal to 2, a 1 percent increase in price will cause the quantity demanded to ____ by ____ percent.
A)decrease; 5
B)increase; 2
C)decrease; 0.5
D)decrease; 2
E)increase; 0.5

Question

Quizplus · Accepted Answer

A price elasticity of demand of 2 means that a 1 percent increase in price will cause a 2 percent decrease in quantity demanded (because the absolute value of elasticity is always used). Therefore, a 1 percent increase in price will cause the quantity demanded to decrease by 2 percent.

If the Price Elasticity of Demand Is Equal to 2