Question

Suppose that the price elasticity of demand for thingamabobs is −3.25. A __________ will lead to a __________ in the quantity demanded of thingamabobs.

I. 12 percent decrease; 39 percent increases

II. 12 percent increase; 39 percent increase

III. 12 percent increase; 39 percent decrease

IV. 12 percent decrease; 39 percent decrease

Which of the following is correct?

a. I and II only.

b. I and III only.

c. II and III only.

d. II and IV only.

e. None of the above.

Answer 1

Answer -  I and III only. ( Option B)

Explanation-:
*Price elasticity of demand is the numerical measure of degree of responsiveness in quantity demanded due to change in price of that commodity. It is measured by following equation -:

e_p = (% Change in quantity demanded / % Change in price )

Option I = 12 percent decrease; 39 percent increases -:
e_p = ( 39% / -12 % ) (Negative indicates a price decrease )
= - 3.25

Option III = 12 percent increase; 39 percent decrease -:
e_p = ( -39% / 12 % ) (Negative indicates a quantity decrease )
= - 3.25