Suppose that along a given demand curve, price goes up by 10 percent, decreasing quantity demanded by 5 percent. The price elasticity of demand is:
A) 50.
B) –2.
C) –1/2.
D) impossible to calculate without specific prices and quantities.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Given that price went up by 10% and decreased quantity demanded by 5%, we can plug these numbers into the formula: (-5% / 10%) = -0.5, which is equal to –1/2. Therefore, the price elasticity of demand is –1/2, making choice C the correct answer.

Suppose That Along a Given Demand Curve, Price Goes Up