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Suppose the price elasticity of demand for a good is – 0.2. If there is a 5 % increase in the price of the good, by what percentage will the demand for the good go down? |
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Answer» ed = -0.2 [Note that ed = -2. Hence we need not prefix ed to (-2)] Percentage change in price = 5% ed = (percentage change in demand)/(percentage change in price) 0.2 = (percentage change in demand)/5 1.0 = percentage change in demand = 1% |
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