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Suppose that the price elasticity of demand for orange has been estimated at -2. If quantity...

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

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Answer #1

The price elasticity of demand for oranges is given as -2.

The quantity demanded has been increased by 10%.

As per the law of demand there is an inverse relationship between price and quantity demand. The quantity demanded increases by 10% indicates that the price must have been fallen.

Calculate how much the price is changed.

Price elasticity = Percentage change in Quantity ÷ Percentage change in Price

-2 = 10% ÷ Percentage change in Price

Percentage change in Price = 10% ÷ -2

Percentage change in Price = -5%

So, the price will fall, lower or decrease by 5%.

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