Question

Assuming that the price elasticity of demand for slinkys (slinkys are a metal spring-like children's toy) is 2, an increase in the price of slinkys of 15% would result in (for slinkys) ___________a. an increase in the quantity supplied of 30%b. a decrease in demand of 30%c. a decrease in the quantity demanded of 7.5%d. a decrease in the quantity demanded of 30%

Answer 1

Answer: d. a decrease in the quantity demanded of 30%

Step-by-step explanation:

Price elasticity of a good is used to measure the magnitude of change in the quantity demanded of the good as a result of a change in price.

Price elasticity = Change in Quantity demanded / Change in Price

2 = Change in quantity demanded / 15%

Change in Quantity demanded = 2 * 15% = 30%

The elasticity is listed as positive but is supposed to be negative even though this can cause confusion. Normal goods are assumed to have a negative elasticity so unless stated otherwise, assume elasticity is negative.

This is why the change is a decrease in quantity demanded.