Assume that the price elasticity of demand equals 0.4 (e_d = 0.4). Given a 10 percent increase in price, there will be a A)40 percent increase in the quantity demanded. B)4 percent decrease in the quantity demanded. C)40 percent decrease in the quantity demanded. D)4 percent increase in the quantity demanded. E)2.5 percent decrease in the quantity demanded.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. With an elasticity of 0.4, a 10 percent increase in price leads to a 4 percent decrease in quantity demanded (0.4 * 10% = 4%).

Assume That the Price Elasticity of Demand Equals 0