If a 10 percent increase in the price of tomatoes leads to a 20 percent decrease in quantity demanded, then the price elasticity of demand for tomatoes, , equals 2.

Question

If a 10 percent increase in the price of tomatoes leads to a 20 percent decrease in quantity demanded, then the price elasticity of demand for tomatoes,  , equals 2.

Quizplus · Accepted Answer

We can use the formula for price elasticity of demand:

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

In this case, we know that:

- The percentage change in price is 10% (since there is a 10% increase in price) 
- The percentage change in quantity demanded is -20% (since there is a 20% decrease in quantity demanded)

Plugging these values into the formula, we get:

Price elasticity of demand = (-20% / 10%) = -2

Note that we have a negative value here because price and quantity demanded have an inverse relationship (i.e. when price goes up, quantity demanded goes down).

However, the question asks for the absolute value of the price elasticity of demand, which is 2. So the answer is A, true.

If a 10 Percent Increase in the Price of Tomatoes