The price elasticity of demand for new cars is 1.2. Hence, a 10 percent price increase will
A) decrease the quantity of new cars demanded by 1.2 percent.
B) increase consumer expenditure on new cars by 1.2 percent.
C) decrease the quantity of new cars demanded by 12 percent.
D) increase consumer expenditure on new cars by 12 percent.

Question

Quizplus · Accepted Answer

Price elasticity of demand of 1.2 means that for every 1% increase in price, the quantity demanded decreases by 1.2%. Therefore, a 10% price increase will decrease the quantity demanded by 12%.

The Price Elasticity of Demand for New Cars Is 1