Final answer:
To calculate the percentage change in demand when the price rises by 2%, multiply the elasticity (1.4) by the percentage change in price (2%). The result is a 2.8% decrease in demand.
Step-by-step explanation:
The question revolves around price elasticity of demand, which measures the responsiveness of the quantity demanded of a product to a change in its price. Assuming the elasticity given is for the initial price of $50, if the price rises by 2%, we can predict the change in demand using the concept of elasticity.
First, let's recall how to calculate the percentage change in quantity demanded:
- Calculate the percentage change in price, which in this case is 2%.
- Determine the elasticity of demand, which you have to provide or use the given value if applicable.
- Multiply the elasticity by the percentage change in price to find the percentage change in quantity demanded.
If the elasticity is 1.4 and the price rises by 2%, the corresponding percentage change in demand would be:
- Percentage change in demand = Elasticity × Percentage change in price
- Percentage change in demand = 1.4 × 2%
- Percentage change in demand = 2.8%
Thus, if the price rises by 2%, the demand would decrease by 2.8%.