Suppose the price elasticity of demand for oil is 0.1. In order to lower the price of oil by 20 percent, the quantity of oil supplied must be increased by
A) 200 percent.
B) 20 percent.
C) 2 percent.
D) 0.2 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity of demand is 0.1, which means that a 1% decrease in price will lead to a 0.1% increase in quantity demanded. To lower the price of oil by 20%, the quantity of oil supplied must be increased by 20% / 0.1 = 200%.

Suppose the Price Elasticity of Demand for Oil Is 0