If the elasticity of demand for sugar cookies is 2.5, then a 10% change in price will lead to a 5% change in quantity demanded.

Question

Quizplus · Accepted Answer

The correct relationship between price elasticity of demand, price change, and quantity change can be represented by the following formula:

% change in quantity demanded = % change in price x elasticity of demand

Using this formula, we can calculate the expected change in quantity demanded as follows:

5% = 10% x 2.5

However, this calculation is incorrect. The correct formula should be:

% change in quantity demanded = % change in price / elasticity of demand

Using this formula, we can calculate the expected change in quantity demanded as follows:

4% = 10% / 2.5

Therefore, the statement in the question is false. A 10% change in price for sugar cookies would lead to a 4% change in quantity demanded, not a 5% change.

If the Elasticity of Demand for Sugar Cookies Is 2