What would be the consequences of a 10 percent decrease in the price of a good for which price elasticity of demand is 5?
A)A 50 percent decrease in quantity demanded
B)A 5 percent increase in quantity demanded
C)A 50 percent increase in quantity demanded
D)A decrease in quantity demanded by 0.2
E)An increase in quantity demanded by 0.2

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. Therefore, if the price of a good decreases by 10 percent and the price elasticity of demand is 5, the quantity demanded will increase by 50 percent (10 percent price decrease multiplied by 5 price elasticity of demand). Therefore, the best choice is (C), a 50 percent increase in quantity demanded.

What Would Be the Consequences of a 10 Percent Decrease