ECONOMICS
ELASTICITY OF DEMAND
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A firm increases its price from $8 to $12 and sees demand for the product fall by 20%. What would the price elasticity of demand be for this product?

2


1.6


1.2


0.8


0.4

Explanation:
Detailed explanation1: The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.
Detailed explanation2: By definition, the price elasticity of demand is computed as the percentage change in quantity demanded divided by the percentage change in price. In this question, the price elasticity is 0.8. This implies that for every one percent increase in price, the quantity demanded will decline by 0.8%.
Detailed explanation3: The formula looks like this: Price Elasticity of Demand = % of change in quantity demanded / % of change in price.
Detailed explanation4: The price elasticity of0.8 implies that the demand is inelastic.
There is 1 question to complete.