Question

Consider the market demand curve for apples, which relates the quantity demanded of apples (in

thousands of bushels) to various prices of apples. Suppose that the price elasticity of demand for apples is -2.

If the price of apples increases by 3 percent, then by how much will the quantity demanded of apples

decrease?

Select one:

a. by 2 percent

b. by 6 percent

c. by 6 thousand bushels

d. by 2 thousand bushels

Answer 1

Answer ) Option b is the correct answer.

Given-

1) Price elasticity of demand for apples -2

2) The percentage change in price is 3%

We have to calculate the percentage change in quantity demanded.

Price elasticity is defined as ratio of percentage change in the quantity demanded to percentage change in price . Thus

Price elasticity (e) = %change in QD/%change in price.

Since %change in QD is not given we will assume it x and will calculate the value-

Putting the values in the formula

-2 = x/0.03

x = 0.03*-2

x =0.06

x=6%

Thus percentage change in quantity demanded is 6%.