Question

If Ed=2 and price decreases by 1%, by what percentage and in what direction will quantity demanded change?

Answer 1

Given:

Elasticity of Demand = 2

Decrease in price = 1%

To find:

Change in quantity demanded

Solution:

The percentage change in quantity demanded is the mathematical product of the percentage change in price and elasticity of demand. This can be mathematically represented as,

$\% \text{ change in quantity demanded }=\% \text{ change in price }\times\text{Elasticity of demand }\\\\ \Rightarrow \% \text{ change in quantity demanded }=1\times2\rightarrow 2\%$

Since, there is a decrease in price, the demand for the product will increase. Therefore, we can conclude that there will be 2% increase in quantity demanded