If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will increase quantity demanded by
A) 20 percent.
B) 0.5 percent.
C) 5 percent.
D) 0.05 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures the responsiveness or sensitivity of the quantity demanded of a product to changes in its price. A value of 0.5 indicates that the demand for the product is relatively inelastic or insensitive to price changes. A 10 percent decrease in price will result in a proportionately smaller increase in quantity demanded, which can be calculated by multiplying the percentage change in price by the absolute value of the price elasticity of demand:

% change in quantity demanded = % change in price x price elasticity of demand
= -10% x 0.5
= -5%

Therefore, a 10 percent decrease in price will increase the quantity demanded by 5 percent.

If the Price Elasticity of Demand for a Product Is