Question

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?a. The quantity of the good demanded decreases from 250 to 150.b. The quantity of the good demanded decreases from 200 to 100.c. The quantity of the good demanded decreases by 0.05 percent.d. The quantity of the good demanded decreases by 0.2 percent.

Answer 1

Answer:

The correct answer is option d.

Explanation:

The price elasticity of demand is the degree of responsiveness of quantity demanded to the change in price. It is calculated as the ratio of change in quantity demanded and change in price of the product.

The price elasticity of demand is 2. There is a 0.1 percent increase in price.

Price elasticity of demand = $\frac{\% \Delta Q}{\% \Delta P}$

2 = $\frac{\% \Delta Q}{0.1}$

$\% \Delta Q = 2\ \times\ 0.1$

$\% \Delta Q = 0.2$