Question

27) Which one of the following will yield a measured price elasticity of demand of 5.0? A 10 percent rise in price results in a A) 10 percent decrease in quantity demanded. B) 5 percent decrease in quantity demanded. C) 2 percent decrease in quantity demanded. D) 50 percent decrease in quantity demanded. E) 0.5 percent decrease in quantity demanded

Answer 1

Answer:

B) 5 percent decrease in quantity demanded.

Explanation:

The price elasticity of demand is defined as the ratio of the percentage change in quantity demanded to the percentage change in price.

Given:

Price elasticity of demand, e = 0.5

Change in price, p = 10%

e = change in quantity demanded, q/change in price, p

q = 0.5 × 10

= 5 %

Change in quantity demanded, q = 5%

Answer 2

Answer:

D) 50 percent decrease in quantity demanded.

Explanation:

Price elasticity of demand (PED) measures the proportional change in quantity demanded resulting from a 1% change in price.

In this case, we are given a PED = 5 and a 10% increase in price, so what should be the change in quantity?

PED = % change in quantity / % change in price

5 = Q / 10%

D = 5 x 10% = 50% decrease in quantity demanded