Suppose that the elasticity of demand for a product is 0.5 and price decreases by 20%. By what percentage will quantity demanded increase?
A) 0.5%
B) 5%
C) 10%
D) 40%

Question

Quizplus · Accepted Answer

The percentage change in quantity demanded can be calculated using the formula:

% Change in quantity demanded = Elasticity of demand x % Change in price

Substituting the values given in the question:

% Change in quantity demanded = 0.5 x (-20%) = -10%

The negative sign indicates that the change in quantity demanded is negative, meaning that quantity demanded will decrease. However, the question asks for the percentage increase in quantity demanded, so we need to take the absolute value of the result:

% Increase in quantity demanded = |-10%| = 10%

Therefore, the correct answer is C) 10%.

Suppose That the Elasticity of Demand for a Product Is