A value of the absolute price elasticity of demand equal to 2.5 indicates that
A) a 5% decrease in price leads to a 2% increase in quantity demanded.
B) a 2% decrease in price leads to a 25% increase in quantity demanded.
C) a 1% decrease in price leads to a 2.5% increase in quantity demanded.
D) a 0.25% decrease in price leads to a 1% increase in quantity.

Question

Quizplus · Accepted Answer

The absolute value of price elasticity of demand indicates the percentage change in quantity demanded in response to a 1% change in price. Therefore, a value of 2.5 means that a 1% decrease in price leads to a 2.5% increase in quantity demanded. Conversely, a 1% increase in price would lead to a 2.5% decrease in quantity demanded.

A Value of the Absolute Price Elasticity of Demand Equal