Assume that the price elasticity of demand is 0.20. Given a 10 percent increase in price, we will see a
A) 20 percent increase in the quantity demanded.
B) 2 percent decrease in the quantity demanded.
C) 20 percent decrease in the quantity demanded.
D) 0.2 percent decrease in the quantity demanded.
E) 2 percent increase in the quantity demanded.

Question

Quizplus · Accepted Answer

A price elasticity of demand of 0.20 means that a 1 percent increase in price results in a 0.20 percent decrease in quantity demanded (0.20 = %ΔQd / %ΔP). Therefore, a 10 percent increase in price will result in a 2 percent decrease in quantity demanded (0.20 x 10 = 2).

Assume That the Price Elasticity of Demand Is 0