The price elasticity of demand for new cars is 1.2. Hence, a 10 per cent price increase will
A) decrease the quantity of new cars demanded by 1.2 per cent.
B) increase consumer expenditure on new cars by 1.2 per cent.
C) increase consumer expenditure on new cars by 12 per cent.
D) decrease the quantity of new cars demanded by 12 per cent.

Question

Quizplus · Accepted Answer

The price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. With an elasticity of 1.2, a 10% increase in price leads to a 12% decrease in quantity demanded (1.2 * 10% = 12%).

The Price Elasticity of Demand for New Cars Is 1