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The price elasticity of demand for a product is |-2|
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.
Expert Solution
- 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".
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