When the price of a good rises by 10 percent and the quantity demanded falls by 20 percent, what is the price elasticity of demand and how is demand described?
Answer and explanation
Correct answer: B. About minus 2
- Step 1: Elasticity equals the percentage change in quantity divided by the percentage change in price. Step 2. -20 / 10 = -2, and an absolute value above 1 means elastic. Answer: about -2, elastic. Why not the others: -0.5 would be inelastic, the sign must be negative, and -30 adds the changes.
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