Question

Suppose the quantity demanded of a particular good increases by 30%, and (the absolute value of) the price elasticity of demand of this good is known to be 2. How must the price have changed?a. it increased by 15%b. it decreased by 66%c. it decreased by 15%d. it increased by 66%

Answer 1

Answer: Option (c) is correct.

Step-by-step explanation:

Given that,

Quantity demanded increases by = 30%

Price elasticity of demand = 2

Therefore,

Price elasticity of demand =
`(Percentage\ change\ in\ quantity\ demanded)/(Percentage\ change\ in\ prices)`

2 =
`(30)/(Percentage\ change\ in\ prices)`

Percentage change in prices =
`(30)/(2)`

= 15%

Therefore, price of a particular good decreases by 15%.