Question

The coefficient of price elasticity of demand for Good X is (−) 0.2. If there is a 5% increase in the price of the good, by what percentage  will the quantity demanded for the good fall?

Answer 1

Given:
Price Elasticity of demand for Good X (E_d)= (-) 0.2
Increase in the price of the good = 5%

`"E"_"d" = (%  "change in quantity demanded")/(%  "change in price") = (%  "change in quantity demanded")/(5%)`

(-) 0.2 = `(%  "change in quantity demanded")/(5%)`

% fall in quantity demanded = 1 percent

So, % fall in quantity demanded = 1 percent.