If a company raises the price of its product by 10% and observes that the quantity demanded decreases by 20%, what can be inferred about the demand elasticity of this product?

When a company raises the price of its product by 10% and sees a 20% decrease in the quantity demanded, we can say that the product has elastic demand. This means that consumers are sensitive to price changes; when the price goes up, they buy much less of the product. We can calculate the elasticity of demand by dividing the percentage change in quantity demanded by the percentage change in price. In this case, it would be -20% divided by 10%, giving us an elasticity of -2. This negative value indicates that demand is elastic because the absolute value is greater than 1, meaning that consumers react strongly to price increases.