If a 10% decrease in the price of good leads to a 20% increase in the quantity demanded of that good,the price elasticity of demand for that good would be:
A)½.
B)2.
C)10.
D)20.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Using the information given, we can calculate the price elasticity of demand as:
%ΔQd / %ΔP = 20% / -10% = -2
Note that the negative sign indicates that the price and quantity demanded are inversely related. The absolute value of -2 is 2, so the price elasticity of demand for this good is 2. Therefore, the answer is B.

If a 10% Decrease in the Price of Good Leads