Suppose the value of the price elasticity of demand is -3. What does this mean?Group of answer choicesA 1 per cent increase in the price of the good causes quantity demanded to increase by 3 per cent.A $1 increase in price causes quantity demanded to fall by 3 units.A 3 per cent increase in the price of the good causes quantity demanded to decrease by 1 per cent.A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent.
Question
Suppose the value of the price elasticity of demand is -3. What does this mean?Group of answer choicesA 1 per cent increase in the price of the good causes quantity demanded to increase by 3 per cent.A $1 increase in price causes quantity demanded to fall by 3 units.A 3 per cent increase in the price of the good causes quantity demanded to decrease by 1 per cent.A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent.
Solution
The correct answer is: A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent.
This is because the price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. A value of -3 indicates that for every 1% increase in price, the quantity demanded decreases by 3%. This is a relatively elastic demand, meaning consumers are quite sensitive to changes in price.
Similar Questions
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