If the absolute price elasticity of demand is 0.2, a 5 percent decrease in the price will cause
A) the quantity demanded to increase by 1 percent.
B) the quantity demanded to increase by 10 percent.
C) the quantity demanded to increase by 0.25 percent.
D) the quantity demanded to increase by 2.5 percent.

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. With an elasticity of 0.2, a 5 percent decrease in price (negative because it's a decrease) would lead to a 1 percent increase in quantity demanded (0.2 * 5 = 1).

If the Absolute Price Elasticity of Demand Is 0