Question 7 of 20
5.0 Points
Suppose that the elasticity of demand for a product is 0.5 and quantity demanded increases by 20%. What must the percentage decrease in price have been?
To determine the percentage decrease in price, we can use the formula for the price elasticity of demand:
Elasticity of demand = percentage change in quantity demanded / percentage change in price
Given that the elasticity of demand is 0.5, and the quantity demanded increases by 20%, we can determine the percentage change in quantity demanded as follows:
Percentage change in quantity demanded = 20%
Now, let's denote the percentage decrease in price as "x". We can plug these values into the formula for the price elasticity of demand:
0.5 = 20% / (-x)
To solve for "x", we can rearrange the equation:
-0.5x = 20%
Dividing both sides of the equation by -0.5:
x = -20% / -0.5
Simplifying the expression:
x = 40%
Therefore, the percentage decrease in price must have been 40%.