Question

Suppose the price elasticity of demand for oil is 0.1. In order to lower the price of oil by 20 percent, the quantity of oil supplied must be increased by

Select one:

a. 200 percent.

b. 20 percent.

c. 0.2 percent.

d. 2 percent.

Answer 1

Price Elasticity of demand (PED) can be defined as a measure of change in quantity demanded to the corresponding change in price

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price      

In this problem the entities of price elasticity of demand and percentage change in price is mentioned, we need to estimate the percentage change in quantity demanded.

Given data:

% Change in Price = 20%

Price Elasticity of Demand = 0.1

To find:

% Change in Quantity Demanded =?

0.1 = % Change in Quantity Demanded / 20

% Change in Quantity Demanded = 2 percent [OPTION D]