Answer
If a 10% increase in price decreases the quantity demanded by 12 percent, the price elasticity of demand is 1.2
Work Step by Step
The price elasticity of demand (Ed) is a measure of the responsiveness of the quantity demanded to changes in price. It is found by dividing the percentage change in quantity demanded by the percentage change in price, and then taking the absolute value of the ration.
Therefore:
Ed = | % change in quantity demanded / % change in price |
% change in quantity demanded = 12
% change in price = 10
Ed = |12/10| = 1.2
