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Homework answers / question archive / The price elasticity of demand for a product is |-2|

The price elasticity of demand for a product is |-2|

Economics

The price elasticity of demand for a product is |-2|. This implies that

A. if the price increases by 2 percent, the quantity demanded will decrease by 1 percent.

B. if the price increases by $1, the quantity demanded will decrease by 2 units.

C. the change in quantity demanded divided by the change in price is equal to 2.

D. if the price increases by 1 percent, the quantity demanded will decrease by 2 percent.

E. if the price increases by 1 unit, the quantity demanded will decrease by 2 units.

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  • The correct option is D. If the price increases by 1 percent, the quantity demanded will decrease by 2 percent.

Mathematically,

Price elasticity of demand = % Change in the quantity demanded / % Change in the price level.

Here, the price elasticity of demand is -2 that can be stated as- "A one percentage change in the price level causes a two percent decline in the quantity demanded".