If a 10 percent increase in new car prices results in a 20 percent decrease in the quantity of new cars purchased by consumers, then the
A) price elasticity of demand for new cars is 2.0
B) price elasticity of demand for new cars is 0.5
C) demand curve for new cars is upward sloping
D) total revenue of new car dealers will increase as price rises

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is (20% / 10%) = 2.0, indicating that for every 1% increase in price, the quantity demanded decreases by 2%.

If a 10 Percent Increase in New Car Prices Results