Question

Given that the own-price elasticity of demand for a brand of shoes is -2, if the price rises by 8%, what will happen to the quantity of shoes demanded?

A) It will increase by 2%.
B) It will increase by 4%.
C) It will decrease by 16%.
D) It will decrease by 8%.

Answer 1

The quantity of shoes demanded will decrease by 16% when the price rises by 8%.

Step-by-step explanation:

The own-price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. In this case, the own-price elasticity of demand for the brand of shoes is -2, which means that a 1% increase in price will result in a 2% decrease in quantity demanded. If the price rises by 8%, we can calculate the percentage change in quantity demanded using the formula:

Percentage change in quantity demanded = own-price elasticity * percentage change in price

Percentage change in quantity demanded = -2 * 8% = -16%

Therefore, the quantity of shoes demanded will decrease by 16%. The correct answer is C) It will decrease by 16%.