When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is
A)0.4.
B)4.
C)2.5.
D)25.

Question

Quizplus · Accepted Answer

The price-elasticity-of-demand coefficient is calculated as the percentage change in quantity demanded divided by the percentage change in price, which is (-2% / 5%) = -0.4. The negative sign indicates the inverse relationship between price and quantity demanded, but the magnitude (0.4) is what's typically reported for elasticity.

When the Price of a Product Is Increased 5 Percent