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 Good X rises by 40 percent.
B) the quantity demanded of Good X rises by 10 percent.
C) the quantity demanded of Good X falls by 10 percent.
D) the quantity demanded of Good X falls by 40 percent.

Question

Quizplus · Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. If elasticity is 0.5, a 20 percent increase in price will lead to a 10 percent decrease in quantity demanded (i.e., 20 percent x 0.5 = 10 percent). Therefore, the quantity demanded of Good X falls by 10 percent.

If the Price Elasticity of Demand Is 0