A product's price elasticity of demand is -2. If the price increases by 5%, what

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Question: A product\'s price elasticity of demand is -2. If the price increases by 5%, what will be the percentage change in quantity demanded?

Options:

Correct Answer: -10%

Solution:

Percentage change in quantity demanded = Price elasticity * Percentage change in price = -2 * 5% = -10%

A product's price elasticity of demand is -2. If the price increases by 5%, what will be the percentage change in quantity demanded?

A product's price elasticity of demand is -2. If the price increases by 5%, what will be the percentage change in quantity demanded?

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: Identify the given values. The price elasticity of demand is -2, and the price increase is 5%.
Step 3: Use the formula for percentage change in quantity demanded: Percentage change in quantity demanded = Price elasticity * Percentage change in price.
Step 4: Substitute the values into the formula: Percentage change in quantity demanded = -2 * 5%.
Step 5: Calculate the result: -2 * 5% = -10%.
Step 6: Interpret the result. A -10% means that the quantity demanded will decrease by 10% when the price increases by 5%.

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.
Calculation of Percentage Change – Understanding how to calculate the percentage change in quantity demanded based on the price elasticity and the percentage change in price.