If the price elasticity of demand for a good is 0.4,then which of the following events is consistent with a 2 percent decrease in the quantity of the good demanded?
A)a 0.8 percent increase in the price of the good
B)a 2.4 percent increase in the price of the good
C)a 5 percent increase in the price of the good
D)a 8 percent increase in the price of the good

Question

Quizplus · Accepted Answer

If the price elasticity of demand for a good is 0.4, a 1 percent increase in price would lead to a 0.4 percent decrease in the quantity demanded (assuming all other factors remain constant). Therefore, a 5 percent increase in price would lead to a 2 percent decrease in quantity demanded (5 x 0.4 = 2). So, only option C (a 5 percent increase in price of the good) is consistent with a 2 percent decrease in quantity demanded.

If the Price Elasticity of Demand for a Good Is