If a 2 percent increase in the price of a good leads to a 10 percent...
If a 2 percent increase in the price of a good leads to a 10 percent decrease in the quantity demanded, the price elasticity of demand for the good equals.
a. 0.25
b. 5.0
c. 0.20
d. 2.0
Homework Answers
ANswer
Option b
Price elasticity of demand =%change in quantity/%change in price
=-10/2
=-5
=5 (absolute value)
The elasticity of demand is 5 and the demand is elastic as the elasticity is above 1.
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