If the price elasticity of demand is 0.5, then when the price of Good X rises by 20 percent:
A) the quantity demanded of it rises by 40 percent.
B) the quantity demanded of it rises by 10 percent.
C) the quantity demanded of it falls by 10 percent.
D) the quantity demanded of it falls by 40 percent.

Question

Quizplus · Accepted Answer

Price elasticity of demand measures the percentage change in quantity demanded in response to a percentage change in price. If the price elasticity of demand is 0.5, it means that a 1% increase in price leads to a 0.5% decrease in quantity demanded. Therefore, a 20% increase in price will result in a 10% decrease in quantity demanded (20% x 0.5).

If the Price Elasticity of Demand Is 0