If the price elasticity of demand is 2 in absolute value, thenwhen the price of Good X rises by 25 percent:
A)the quantity demanded of Good X rises by 50 percent.
B)the quantity demanded of Good X falls by 50 percent.(True Answer )Correct
C)the quantity demanded of Good X rises by 12.5 percent.
D)the quantity demanded of Good X falls by 12.5 percent.

Question

Quizplus · Accepted Answer

The absolute value of the price elasticity of demand (|PED|) indicates the degree of responsiveness of the quantity demanded to a change in price. When |PED| is greater than 1, it means that the percentage change in quantity demanded is greater than the percentage change in price. In this case, |PED| = 2, so when the price of Good X rises by 25 percent, the quantity demanded will fall by 50 percent (i.e. 25% x 2 = 50%). Therefore, the best choice is B.

If the Price Elasticity of Demand Is 2 in Absolute