Question

5. The price of a good rises by 12 percent and the price elasticity of demand for the good is -0.85. Which of the following is a correct interpretation of these facts?

A. When the price rises by 12 percent, the quantity demanded decreased by 0.85 percent.

B. For each 1 percent that the price rose, the quantity demanded decreased by 10.2 percent.

C. For each 0.85 percent that the price rose, the quantity demanded decreased by 1 percent.

D. For each 1 percent that the price rose, the quantity demanded decreased by 0.85 percent.

Answer 1

Ed=%change in quantity/% change in price.

Ed=-0.85

%change in price=12%

%change in quantity=0.85*12=10.2%

Answer-B