Suppose that the elasticity of demand for newspapers is 2.0 and quantity demanded decreases by 40%. What must the percentage increase in price have been?
A) 2%
B) 20%
C) 80%
D) 200%

Question

Quizplus · Accepted Answer

The elasticity of demand formula is % change in quantity demanded divided by % change in price. Therefore, if the elasticity of demand is 2.0 and quantity demanded decreases by 40%, we can find the percentage increase in price using the following formula:

2.0 = -40% ÷ % change in price

Multiplying both sides by the % change in price, we get:

% change in price = -40% ÷ 2.0 = -20%

Since price cannot decrease, we want to find the percentage increase in price, which is the absolute value of -20%, which is 20%. Therefore, the correct answer is B) 20%.

Suppose That the Elasticity of Demand for Newspapers Is 2