If the price elasticity of demand for a good is 0.5,then a 5 percent increase in price results in a
A)0.1 percent decrease in the quantity demanded.
B)1 percent decrease in the quantity demanded.
C)2.5 percent decrease in the quantity demanded.
D)10 percent decrease in the quantity demanded.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is % change in quantity demanded / % change in price. If the elasticity is 0.5, it means that a 1% increase in price will result in a 0.5% decrease in quantity demanded. 
Therefore, a 5% increase in price will result in a 2.5% decrease in the quantity demanded. Hence, the correct answer is C.

If the Price Elasticity of Demand for a Good Is