Chapter 46, Problem 5MCQ

To determine

The price elasticity for the demand.

Answer to Problem 5MCQ

Option c is correct.

Explanation of Solution

Explanation for the correct option:

c.

  $\begin{array}{c}\text{Price elasticity}=\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}\\ =\frac{10\%}{2\%}\\ =5\end{array}$

Therefore, option c is the correct answer.

Explanation for incorrect options:

Since it is calculations based other options are incorrect.

Economics Concept Introduction

Income effect: Income effect shows the increasing purchasing power of a consumer when there is a change in the price level.

Substitution effect: Substitution effect shows the ability to substitute inferior good with a normal good due to a change in the price level.