The quantity of pencils sold is 1000 at the unit price $0.5. Suppose the price elasticity of demand for pencils by the initial value method is 2, and you would like to increase the quantity sold to 1200. Then the new price for pencils must be
A) $0.05.
B) $0.25.
C) $0.30.
D) $0.45.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 2, meaning a 1% decrease in price leads to a 2% increase in quantity demanded. To increase quantity from 1000 to 1200, a 20% increase is needed. Thus, the price must decrease by 10% (20%/2). A 10% decrease from $0.5 is $0.45.

The Quantity of Pencils Sold Is 1000 at the Unit