Final answer:
The elasticity of demand for textbooks is calculated as the percentage change in quantity demanded divided by the percentage change in price. With a 20% decrease in quantity demanded due to a 10% price increase, the elasticity is -2, which we read as an absolute value of 2, indicating that the demand for textbooks is elastic.
Step-by-step explanation:
The elasticity of demand for textbooks in this scenario can be calculated using the formula for price elasticity of demand which is the percentage change in quantity demanded divided by the percentage change in price. In this case, we have a 20 percent decrease in the quantity demanded and a 10 percent increase in the price. So the elasticity of demand is calculated as (-20%) / (10%) = -2.
Since price elasticities of demand are read as absolute values, we would report the elasticity of demand for textbooks as 2, indicating that the demand is elastic. This means the quantity demanded changes by a greater percentage than the change in price. Specifically, a 10 percent increase in price leads to a 20 percent decrease in the quantity demanded of textbooks, showing a sensitive response to price changes.