If a product's price elasticity of demand is -2, what does this indicate about t

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

Options:

Correct Answer: Elastic

Solution:

A price elasticity of -2 indicates that demand is elastic, meaning quantity demanded changes significantly with price changes.

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

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

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 the value of price elasticity is usually negative because price and quantity demanded move in opposite directions.
Step 3: A price elasticity of -2 means that for every 1% increase in price, the quantity demanded decreases by 2%.
Step 4: Since the absolute value of -2 is greater than 1, this indicates that the demand is elastic.
Step 5: Elastic demand means that consumers are very responsive to price changes; a small change in price leads to a large change in quantity demanded.

Price Elasticity of Demand – Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good.
Elastic vs Inelastic Demand – Elastic demand (absolute value > 1) means quantity demanded changes significantly with price changes, while inelastic demand (absolute value < 1) means it changes little.