Question

Suppose that the price elasticity of demand for maple syrup has been estimated at -2. If quantity demanded increased by 10 percent, price must have changed by

Select one:

a. 10 percent higher

b. 10 percent lower

c. 5 percent lower.

d. 5 percent higher

Answer 1

Give price elasticity = -2

Percentage increase in Quantity Demanded = 10%

Calculate the change in price.

Elasticity = %Change in the Quantity demanded ÷ %Change in the Price

-2 = 10% ÷ %Change in Price

-2 (%Change in Price) = 10%

%Change in Price = 10% ÷ -2

%Change in Price = -5%

There will be a 5% fall in the price.

As per the inverse relationship between price and quantity demanded, when the price falls quantity demanded increases.

Answer – c. 5 percent lower.