Introduction to Economics 1 Deneme Sınavı Sorusu #1240019
Which of the following interpretations is true when price elasticity of demand is equal to -4?
Which of the following interpretations is true when price elasticity of demand is equal to -4?
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An increase in price by 25 percent will cause an increase in demand by 100 percent. |
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A decrease in price by 25 percent will cause an increase in demand by 100 percent. |
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A decrease in price by 10 percent will cause an increase in demand by 2.5 percent. |
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A decrease in price by 40 percent will cause an increase in demand by 10 percent. |
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A decrease in price by 100 percent will cause a decrease in demand by 25 percent. |
Price elasticity of demand is percentage change in quantity demanded divided by percentage change in price. An increase is a positive change and a decrease is a negative change. Hence the statement "A decrease in price by 25 percent will cause an increase in demand by 100 percent" means -100/25 = -4.
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