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If the price elasticity of demand for butter is 2, a 1% decrease in the price of butter will: a
If the price elasticity of demand for butter is 2, a 1% decrease in the price of butter will:
a. increase the quantity demanded by 2%.
b. increase the quantity demanded by 0.5%.
c. reduce the quantity demanded by half.
d. double the quantity demanded.
Expert Solution
The correct answer to the given question is a. increase the quantity demanded by 2%..
The percentage increase in quantity demanded is given by:
=Price elasticity of demand * percent decrease in price=2∗1%=2%
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