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price elasticity of demand

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1 Answer

To start, lets revisit the basic equation to calculate the Price Elasticity of Demand (PEoD). The equation is:
PEoD = (% Change in Quantity Demanded) / (% Change in Price) or abbreviated it would look like this:
PEoD = % change D / % change P
In the question we are given two of the three values in the equation.
PEoD = -2
% Change in Price = 20%
We then insert the given quantity for each item given into the equation.
-2 = % change D / 20%
When you solve for % change D the answer comes out as a -10% on the quantity demanded.