Question

Suppose the price elasticity of demand for a good is $-0.2$. If there is a $5$ per cent increase in the price of the good, by what percentage will the demand for the good go down?

Answer 1

Price elasticity of demand $\left(E_d\right)=\frac{Percentagechangeinquantitydemanded}{Percentagechangeinprice}$
Elasticity of demand = -0.2
Percentage change in price = 5 per cent
$-0.2=\frac{Percentagechangeinquantitydemanded}{5\%}$
$\Rightarrow$ Percentage change in quantity demanded $=-0.2\times$ $5\%=(-)1$ per cent
$\therefore$ Demand for the good goes down by $1$ per cent.