The price elasticity of demand for a good is 2.0, and the quantity demanded is 5,000 units. the price increases by 10%. what is the new quantity demanded? incorrect a. 1,000b. 4,000c. 4,500d. 6,000

the correct option is B) 4000 units.

Explanation:

FORMULA FOR PRICE ELASTICITY = \frac{percentage \: change \: in \: quantity \: demanded}{percentage \: change \: in \: price}

Given -  price elasticity = 2.0,

             quantity demanded = 5000 units (old)

             percentage change in price = 10%

2.0 = Percentage change in quantity demanded / 10%

Percentage change in quantity demanded = 10% x 2

                                                                       = 20%

Percentage change in quantity demanded =

 new quantity demanded - old quantity demanded

20% = new quantity demanded - 5000

new quantity demanded = 4000 units.

( 4000 / 5000 x 100 = 20% )

Another short way of understanding this is through the inverse relationship between price and quantity demanded. As it is given that the price is increased by 10% then according to law of demand we can say that the quantity demanded would decrease by 10% ( 5000 - 5000 x 10% = 4000)

a

b

b

a

c

b

d

d

none of these are correct, as they are all sources of american law

a