Question

If demand price elasticity measures 2, this implies that consumers would:

1) buy twice as much of the product if the price drops 10 percent.
2) require a 2 percent drop in price to increase their purchases by 1 percent.
3) buy 2 percent more of the product in response to a 1 percent drop in price.
4) require at least a $2 increase in price before showing any response to the price increase.
5) buy twice as much of the product if the price drops 1 percent.

Answer 1

Price elasticity of demand measuring 2 means consumers will buy 2% more of the product for a 1% drop in price. This shows an elastic demand, where quantity demanded changes more than the price change.

Step-by-step explanation:

When demand price elasticity measures 2, this implies that consumers will buy 2 percent more of the product in response to a 1 percent drop in price.

Price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, an elasticity of 2 means that for a given percentage change in price, the quantity demanded will change by twice that percentage in the opposite direction, since demand is elastic.

If demand were perfectly inelastic or inelastic, changes in price would result in smaller percentage changes in quantity demanded.

Conversely, with a demand that is unit elastic, the percentage change in quantity demanded equals the percentage change in price. Understanding this helps advise companies on their pricing strategies for maximizing revenue.