D perfectly unit elastic E perfectly elastic 28 If the price

D) perfectly unit elastic. E) perfectly elastic. 28. If the price elasticity of demand for razors is-0.32, when the price increases 10% you would expect quantity to A) increase .32% B) decrease .32% C) increase 32% D) decrease 32% E) decrease 3.2%

Solution

Ans is E

Price elasticity of demand=%change in Quantity demanded/%change in prices

0.32=%change in quantity demanded/10

Thus %change in quantity demanded=0.32*10=3.2%

Negative Ed signifies an inverse relation between price and quantity demanded keeping other factor constant.

Thus when price increases by 10% quantity demanded decreases by 3.2%