The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must
A) increase price by 2.0%.
B) decrease price by 2.0%.
C) increase price by 0.5%.
D) decrease price by 0.5%.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is % Change in Quantity Demanded / % Change in Price. To increase quantity sold by 5% with an elasticity of -2.5, the price must decrease by 2% (5% / -2.5 = -2%).

The ABC Computer Company Wants to Increase the Quantity of Computers