If the price of organic milk increases by 10% and quantity demanded falls by 20%,then the price elasticity of demand for organic milk is 2.

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, the price of organic milk increases by 10% and the quantity demanded falls by 20%. Therefore, the price elasticity of demand can be calculated as:

Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

Elasticity = (-20%) / (10%)

Elasticity = -2

Since the price elasticity of demand is a negative value, we consider its absolute value, which is 2. This means that the demand for organic milk is relatively elastic, indicating that a small change in price causes a relatively larger change in quantity demanded.

If the Price of Organic Milk Increases by 10% and Quantity