If price elasticity of demand for a good is 2.0, this implies that consumers would
A) buy twice as much of the good if price falls by 10 per cent.
B) require a 2 per cent cut in price to raise quantity demanded of the good by 1 per cent.
C) buy 2 per cent more of the good in response to a 1 per cent cut in price.
D) require at least a €2 increase in price before showing any response to the price increase.

Question

Quizplus · Accepted Answer

A price elasticity of 2.0 means that for every 1% decrease in price, quantity demanded increases by 2%. Therefore, a 1% cut in price would lead to a 2% increase in quantity demanded (option C). Option A is incorrect because it implies a 10% decrease in price, which is not specified in the question. Option B is incorrect because it implies a 1% increase in quantity demanded, which is not the case when price elasticity is 2.0. Option D is incorrect because it suggests that consumers are unresponsive to any increase in price, which is not the case with an elasticity of 2.0.

If Price Elasticity of Demand for a Good Is 2