Assume the demand for electricity, a necessity with few substitutes, is −0.2. If the electric company raised its rates by 10 percent, we would expect a
A) 10 percent decrease in quantity demanded.
B) 2 percent increase in quantity demanded.
C) 10 percent increase in quantity demanded.
D) 2 percent decrease in quantity demanded.
E) 5 percent decrease in quantity demanded.

Question

Quizplus · Accepted Answer

The price elasticity of demand is -0.2, meaning a 10% increase in price would lead to a 2% decrease in quantity demanded (10% * -0.2 = -2%).

Assume the Demand for Electricity, a Necessity with Few Substitutes