If the price elasticity of demand is 0.5, then a 10 percent increase in price results in a
A) 5 percent decrease in quantity demanded.
B) 50 percent reduction in quantity demanded.
C) 5 percent increase in quantity demanded.
D) 0.5 percent decrease in quantity demanded.
E) 5 percent decrease in total revenues.

Question

Quizplus · Accepted Answer

A price elasticity of demand of 0.5 means that a 10 percent increase in price will lead to a 5 percent decrease in quantity demanded. This is calculated by multiplying the percent change in quantity demanded (unknown) by the price elasticity coefficient of 0.5, which results in a 5 percent decrease.

If the Price Elasticity of Demand Is 0