If the price elasticity of demand for a good is 0.8,then which of the following events is consistent with a 4 percent decrease in the quantity of the good demanded?
A) a 0.2 percent increase in the price of the good
B) a 3.2 percent increase in the price of the good
C) a 4.8 percent increase in the price of the good
D) a 5 percent increase in the price of the good

Question

Quizplus · Accepted Answer

The price elasticity of demand measures the responsiveness of quantity demanded to changes in price. If the price elasticity of demand for a good is 0.8, a 1 percent change in price is expected to lead to a 0.8 percent change in quantity demanded in the opposite direction. Therefore, in order to cause a 4 percent decrease in quantity demanded, the price of the good must increase by 5 percent (4 percent divided by 0.8). Among the given choices, only option D, a 5 percent increase in the price of the good, is consistent with this.

If the Price Elasticity of Demand for a Good Is