The price elasticity of demand for a product is 2, which implies that
A) if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.
B) if the price increases by 1 unit, the quantity demanded will decrease by 2 units.
C) if the price increases by 1 percent, the quantity demanded will increase by 1 percent.
D) if the quantity demanded increases by 1 percent, the price will decrease by 2 percent.
E) the change in quantity demanded divided by the change in price is equal to 2.

Question

Quizplus · Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. An elasticity of 2 means that a 1% increase in price will result in a 2% decrease in quantity demanded. Therefore, option A is correct. Option B is incorrect because the change in quantity demanded is proportional to the percentage change in price, not the absolute change in price. Option C is incorrect because an elasticity of 2 implies that a price increase will lead to a decrease in quantity demanded, not an increase. Option D is also incorrect because it sees the relationship between quantity demanded and price in the opposite direction than intended by the definition of price elasticity of demand. Option E expresses an incomplete definition of the term, which does not account for directionality.

The Price Elasticity of Demand for a Product Is 2