Figure 5.3. The figure shows the wage rate and the quantity of labor supplied in an unskilled labor market.
-Assume that the price elasticity of demand for a commodity is 0.20. A 10 percent increase in the price of the commodity will be followed by 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

​Figure 5.3. The figure shows the wage rate and the quantity of labor supplied in an unskilled labor market. 
-Assume that the price elasticity of demand for a commodity is 0.20. A 10 percent increase in the price of the commodity will be followed by 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.

Quizplus · Accepted Answer

A price elasticity of demand of 0.20 indicates that the quantity demanded is relatively unresponsive to changes in price. Thus, a 10 percent increase in price will lead to a relatively small decrease in the quantity demanded, calculated as 0.20 x (-10%) = -2%. Therefore, the correct answer is B, indicating a 2 percent decrease in quantity demanded.

​Figure 53

Figure 53