Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by
A) 2 percent and total expenditures on bread will rise.
B) 2 percent and total expenditures on bread will fall.
C) 20 percent and total expenditures on bread will fall.
D) 20 percent and total expenditures on bread will rise.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 0.20, meaning a 10% decrease in price leads to a 2% increase in quantity demanded. Since demand is inelastic, total expenditures will fall.

Suppose the Price Elasticity of Demand for Bread Is 0