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

The price elasticity of demand for tomatoes is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Given: 
- 10% increase in price of tomatoes 
- 20% decrease in quantity demanded

Using the formula: 
Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price) 
Price elasticity of demand = (-20%) / (10%) 
Price elasticity of demand = -2

Note that the minus sign indicates that demand is elastic (responsive to changes in price). Taking the absolute value of -2 gives a value of 2.

If a 10 Percent Increase in the Price of Tomatoes