Question

Suppose the price elasticity of demand for a good is −0.2. How will the expenditure on the good be affected if there is a 10% increase in its price?

Answer 1

Answer:

Price elasticity of demand (Ed)

)=

Percentagechangeinquantitydemanded/percentage change in price

Elasticity of demand = -0.2

Percentage change in price = 5 per cent

−0.2=

Percentagechangeinquantitydemanded/5%

⇒ Percentage change in quantity demanded =−0.2× 5%=(−)1 per cent

∴ Demand for the good goes down by 1 per cent.

Explanation:

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Answer 2

Answer:

Price elasticity of demand (Ed) )= Percentagechangeinquantityde manded/percentage change in price Elasticity of demand = -0.2 Percentage change in price = 5 per cent -0.2= Percentagechangein quantitydemanded/ 5% - Percentage change in quantity demanded =-0.2x 5%=(-)1 per cent .: Demand for the good goes down by 1 per cent.