Find the value of price elasticity of demand of a good whose demand decreases by 20% for an increase in its price of 10%.
Answer & explanation
Correct answer: option 2
Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a commodity to the change in price of the good.
It is measured as: Ped = \(\frac{\text {% change in quantity demanded}}{\text {% change in price }}\)
Ped = \(\frac{\text {20%}}{\text {10% }}\)
Ped = \(\frac{\text {2}}{\text {1 }}\)
Ped = 2