A value of the absolute price elasticity of demand equal to 0.25 indicates that
A) a 10% decrease in price leads to a 4% increase in quantity demanded.
B) a 10% 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 price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. A value of 0.25 means that for every 1% change in price, the quantity demanded changes by 0.25%. Therefore, a 10% decrease in price leads to a 2.5% increase in quantity demanded, which is closest to the 4% increase described in option A, considering the options provided.

A Value of the Absolute Price Elasticity of Demand Equal