The price elasticity of demand for an agricultural product is 0.4. This value means that, when the quantity decreases 1 per cent, the price
A) rises 4 per cent.
B) falls 2.5 per cent.
C) rises 2.5 per cent.
D) rises 0.25 per cent.
E) falls 4 per cent.

Question

Quizplus · Accepted Answer

The price elasticity of demand of 0.4 means that for a 1% decrease in quantity, the price would rise by 2.5% to maintain the same revenue, as the elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price, thus a 0.4 elasticity translates to a 2.5% price increase for a 1% decrease in quantity.

The Price Elasticity of Demand for an Agricultural Product Is