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Consumer Spending and Price Elasticity
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If the price of a popular brand of sneakers increases by 10% and the quantity demanded decreases by 20%, what is the price elasticity of demand for these sneakers?

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Choose the Best Answer

A

5

B

1

C

2

D

3

Understanding the Answer

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Answer

Price elasticity of demand measures how much the quantity demanded of a product changes when its price changes. In this case, the price of the sneakers increased by 10%, and the quantity demanded decreased by 20%. To find the price elasticity, we divide the percentage change in quantity demanded by the percentage change in price. This gives us -20% divided by 10%, which equals -2. This means the demand for these sneakers is elastic, indicating that consumers are quite sensitive to price changes; a small increase in price leads to a large decrease in the quantity they are willing to buy.

Detailed Explanation

The price elasticity of demand is 2. Other options are incorrect because This answer suggests a very high sensitivity; This answer implies that demand is perfectly inelastic, meaning quantity doesn't change with price.

Key Concepts

price elasticity of demand
Topic

Consumer Spending and Price Elasticity

Difficulty

easy level question

Cognitive Level

understand

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