If the price elasticity of demand for a good is 2,then a 10 percent decrease in the quantity demanded must be the result of
A)a 0.2 percent increase in the price.
B)a 2.5 percent increase in the price.
C)a 5 percent increase in the price.
D)a 20 percent increase in the price.

Question

Quizplus · Accepted Answer

The price elasticity of demand tells us how responsive the quantity demanded is to a change in price. An elasticity of 2 means that for every 1% increase in price, the quantity demanded will decrease by 2%. Therefore, a 10% decrease in quantity demanded would result from a 5% increase in price (10%/2=5%). Therefore, the correct choice is C) a 5% increase in price.

If the Price Elasticity of Demand for a Good Is