Question

The price elasticity of demand for a good is - 0.4. If its price increases by 5 percent, by what percentage will its demand fall? Calculate.

Answer 1

`e_d="Percentage in quantity demanded of the good"/"Percentage in price of the good"`

`0.4="Percentage in quantity demanded of the good"/5`

Percentage in quantity demanded of the good = 0.4 x 5 = 2

Hence,as the price increases by 5%, the quantity demanded falls by 2%.