The price of a good rises by 4 percent and the quantity demanded falls by 8 percent. What is the price elasticity of demand?
Answer and explanation
Correct answer: A. −2
- Step 1: Elasticity equals the percentage change in quantity divided by the percentage change in price. Step 2. −8 divided by 4 is −2. Answer: −2. Why not the others: −0.5 inverts the ratio and +2 has the wrong sign.
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