Suppose the own price elasticity of demand for good X is 02

Suppose the own price elasticity of demand for good X is -0.2, and the price of good X decreases by 10%. We would expect the quantity demanded of good X to:

A: Increase by 2%

B: Increase by 10%

C: Decrease by 2%

D: Decrease by 10%

Solution

own price elasticity of demand for good X = % change in quantity demanded of good X / % change in price

% change in quantity demanded of good X / -10% = -0.2

% change in quantity demanded of good X = -10%*-0.2 = 2% (increase) A: Increase by 2%