Assume that the price elasticity of demand for a commodity is 0.20.A 10 percent increase in price will be followed by a:
A)20 percent increase in the quantity demanded.
B)2 percent decrease in the quantity demanded.
C)20 percent decrease in the quantity demanded.
D)0.2 percent decrease in the quantity demanded.
E)2 percent increase in the quantity demanded.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 0.20, meaning a 1% increase in price leads to a 0.20% decrease in quantity demanded. Therefore, a 10% increase in price results in a 2% decrease in quantity demanded (10% * 0.20 = 2%).

Assume That the Price Elasticity of Demand for a Commodity