Question

If the own-price elasticity is equal to −0.8, then

A. a 1% change in quantity demanded gives rise to a −0.8% change in price.
B. a 10% increase in price gives rise to an 8% decrease in quantity demanded.
C. a 1% increase in price leads to an 8% decrease in quantity demanded.
D. none of the above.

Answer 1

The correct answer is B, where a 10% increase in price results in an 8% decrease in quantity demanded, reflecting the own-price elasticity of −0.8.

Step-by-step explanation:

The question pertains to the concept of own-price elasticity of demand, which measures how the quantity demanded of a good responds to a change in the price of that good. In this case, with an own-price elasticity of −0.8, it means that for a 1% increase in price, there is a 0.8% decrease in the quantity demanded of the product. Therefore, the correct answer to the student's question is B: a 10% increase in price gives rise to an 8% decrease in quantity demanded.

This reflects a proportional, but less than one-to-one, responsive change in quantity demanded as a result of price changes. It's important to note that price elasticity of demand is typically a negative number, as the law of demand indicates that price and quantity demanded move in opposite directions (i.e., demand curve is downward sloping).