Question

If the price elasticity of demand for a product is negative 2.5, than a price increase from $2 to $2 and 20 cents will.

A decrease the quantity demanded by about 12.5%
B decrease the quantity diminished by about 25%
C increase the quantity demanded by about 12.5%
D increase the quantity demanded by about 25%.

Answer 1

The price elasticity of demand is -2.5, meaning that a 1% increase in price will result in a 2.5% decrease in quantity demanded.

Step-by-step explanation:

The price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. In this case, the price elasticity of demand is -2.5, which means that a 1% increase in price will result in a 2.5% decrease in quantity demanded.

Using this information, we can calculate the change in quantity demanded when the price increases from $2 to $2.20. The price has increased by 10%, so the quantity demanded will decrease by 2.5% x 10% = 25%.