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linda_us
linda_us, Master's Degree
Category: Single Problem
Satisfied Customers: 7291
Experience:  A tutor for Business, Finance, Accounts and other related topics.
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If the price elasticity of demand is .5 this means that ____

Resolved Question:

If the price elasticity of demand is .5 this means that ____ increase in price causes a ___ decrease in quantity demanded.

I came up with 20% and 1% is this correct
Submitted: 4 years ago.
Category: Single Problem
Expert:  linda_us replied 4 years ago.
From the formula:
(% change in quantity demanded / % change in price) = the price elasticity of demand
5% / 10% = 0.5

Hence The answer will be
If the price elasticity of demand is .5 this means that ___10%_ increase in price causes a __5%_ decrease in quantity demanded.

Regards

Linda
Customer: replied 4 years ago.
Im sorry but that I know for sure is not the answer....
Expert:  linda_us replied 4 years ago.
Is your answer 20% increase and 1% decrease as it will give us

PEod = (-1/20) = -.05 and not .5

Also any decrease and increase will give us negative price elasticity of demand.

Do we have any options for this question?

I will opt out and let other experts help you with this.
Customer: replied 4 years ago.

these are the choices

30%, 15%

20%, 100% - i know this is not correct

20%, 1% - this isn't correct either

5%, 1%

 

Im thinking it has to be 30%, 15% is that correct

 

Expert:  linda_us replied 4 years ago.
Yes the correct answer according to the choices given will be 30%, 15%. Since it will give us 15% / 30% = 0.5

If we ignore the choices any combination of change in Price percentage being double than change in Demand percentage will give us 0.5.

Since the choices were not given earlier thats why I solved it for you by choosing own figures to get 0.5 as PEod. (as 5% /10% will also give 0.5)

Please note that I get credit for my work only when you click Accept.

Regards

Linda
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