Suppose that the percentage change in demand is 10%, the price elasticity of supply is 2, and the percentage change in the equilibrium price is 3.33%. What is the price elasticity of demand?
A) 0
B) 1
C) 2
D) 3

Question

Quizplus · Accepted Answer

We can use the formula for price elasticity of demand:

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

We know that the % change in price is 3.33%, and we can calculate the % change in quantity demanded using the formula:

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

% change in quantity demanded = 2 x 3.33% = 6.67%

Substituting into the formula for price elasticity of demand:

6.67% / 3.33% = 2

Therefore, the price elasticity of demand is 2, which corresponds to choice (B).

Suppose That the Percentage Change in Demand Is 10%, the Price