Question

Suppose the price elasticity of demand for a good is −0.2. If there is a 5% increase in the price of the good, then by what percentage will the demand for the good go down?

Answer 1

e_d = −0.2 [ ∵ Note that e_d = −2. Hence, we need not prefix e_d to (−2)]

Percentage change in price = 5%

`e_d = ( "Precentage change in demand ")/("Precentage change in price ")`

`0.2 = ( "Precentage change in demand ")/5`

1.0 ⇒ Percentage change in demand

= 1%