If the price rises from 10 pence to 12 pence and the price elasticity of demand is -0.5, what is the new quantity demanded given that the original quantity was 500 units?

Multiple choice question for Supply and Demand. Select an option, then review the explanation below.

Explanation

The price increased by 20% (from 10 to 12 pence). With a price elasticity of demand of -0.5, the quantity demanded will decrease by 10% (0.5 × 20%). Therefore, the new quantity demanded is 90% of 500 units, which equals 450 units.

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If the price rises from 10 pence to 12 pence and the price elasticity of demand is -0.5, what is the new quantity demanded given that the original quantity was 500 units?

Explanation

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