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Question
Suppose the price elasticity of demand for a good is −0.2. If there is a 5% increase in the price of the good, then by what percentage will the demand for the good go down?
Solution
ed = −0.2 [ ∵ Note that ed = −2. Hence, we need not prefix ed to (−2)]
Percentage change in price = 5%
`e_d = ( "Precentage change in demand ")/("Precentage change in price ")`
`0.2 = ( "Precentage change in demand ")/5`
1.0 ⇒ Percentage change in demand
= 1%
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