If a product's price elasticity of demand is -2, what does this indicate about c

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Question: If a product\'s price elasticity of demand is -2, what does this indicate about consumer behavior?

Options:

Correct Answer: Elastic demand

Solution:

A price elasticity of -2 indicates elastic demand, meaning consumers are sensitive to price changes.

If a product's price elasticity of demand is -2, what does this indicate about consumer behavior?

If a product's price elasticity of demand is -2, what does this indicate about consumer behavior?

Step 1: Understand what price elasticity of demand means. It measures how much the quantity demanded of a product changes when its price changes.
Step 2: Recognize that a price elasticity of -2 means that for every 1% increase in price, the quantity demanded decreases by 2%.
Step 3: Note that the negative sign indicates the inverse relationship between price and quantity demanded (as price goes up, demand goes down).
Step 4: Since the absolute value of -2 is greater than 1, this indicates elastic demand.
Step 5: Conclude that consumers are sensitive to price changes, meaning they will buy significantly less of the product if the price increases.

Price Elasticity of Demand – Price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price. A value of -2 indicates that a 1% increase in price will lead to a 2% decrease in quantity demanded, showing that demand is elastic.