Question

Price Elasticity of Demand of a good is (−) 3. It shows that:

Options

• When price falls by 1%, demand rises by 3%

• When price rises by 1%, demand falls by 3%

• Either (a) or (b)

• Neither (a) nor (b)

Answer 1

Either (a) or (b)

Explanation:

An elasticity of −3 means a 1% price change brings an opposite-direction 3% demand change. Thus either a 1% price fall raises demand by 3%, or a 1% price rise lowers it by 3%.