A 10 percent increase in price leads to a 20 percent decrease in the quantity demanded.The price elasticity of demand is equal to
A) 0.5.
B) 1.0.
C) 2.0.
D) 20.0.
E) 10.0.

Question

Quizplus · Accepted Answer

Price Elasticity of Demand (PED) = % Change in Quantity Demanded / % Change in Price

Here, % Change in Price = +10% (increase in price)
And % Change in Quantity Demanded = -20% (decrease in quantity demanded)

So, PED = (-20%/+10%) = -2

But since PED is always reported as a positive value, we take the absolute value of PED, which gives:
PED = 2.0

Therefore, the answer is C) 2.0.

A 10 Percent Increase in Price Leads to a 20