Question

If the price elasticity of demand for a commodity is -2.5 and the percentage decrease in the quantity demanded is 10%, find out the percentage change in its price.

• A. 25%
• B. -25%
• C. 4%
• D. -4%

Hint:

Pay close attention to the signs (positive or negative) when calculating price elasticity. A negative Ed indicates an inverse relationship between price and quantity demanded.

Answer 1

The Correct Option is C

Step 1: Apply the law of demand - falling quantity means rising, positive price change, eliminating the negative options.
Step 2: Compute the magnitude: \( |\%\Delta P| = \frac{|\%\Delta Q|}{|E_d|} = \frac{10}{2.5} \)
Step 3: This gives \( |\%\Delta P| = 4 \), consistent with the positive sign from Step 1.
Step 4: \[ \boxed{4\%} \]