If a 2 percent increase in the price of a good leads to a 10 percent decrease in the quantity demanded, the price elasticity of demand for the good equals__________ .
A)5.0
B)2.0
C)0.25
D)0.20

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which in this case is -10% / 2% = -5. The negative sign indicates the inverse relationship between price and quantity demanded, but the magnitude (5) is what's typically reported for elasticity, hence the answer is 5.0.

If a 2 Percent Increase in the Price of a Good