The price of a good rises by 12 percent and the price elasticity of demand for the good is 0.85. Which of the following is a CORRECT interpretation of these facts?
A) When the price rises by 12 percent, the quantity demanded decreased by 0.85 percent.
B) For each 1 percent that the price rose, the quantity demanded decreased by 10.2 percent.
C) For each 0.85 percent that the price rose, the quantity demanded decreased by 1 percent.
D) For each 1 percent that the price rose, the quantity demanded decreased by 0.85 percent.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. An elasticity of 0.85 means that for each 1 percent increase in price, the quantity demanded decreases by 0.85 percent.

The Price of a Good Rises by 12 Percent and the Price