Question

If the price elasticity of demand for a commodity is -2.5 and the percentage decrease in the quantity demanded is 10%, find out the percentage change in its price.

• A. 25%
• B. -25%
• C. 4%
• D. -4%

Hint:

Pay close attention to the signs (positive or negative) when calculating price elasticity. A negative Ed indicates an inverse relationship between price and quantity demanded.

Answer 1

The Correct Option is C

Price elasticity of demand (Ed) is calculated as: Ed = (% Change in Quantity Demanded) / (% Change in Price).
Given Ed = -2.5 and % Change in Quantity Demanded = -10%
(because it's a decrease), we have:
-2.5 = (-10) / (% Change in Price)
% Change in Price = (-10) / (-2.5) = 4%