If the Price Elasticity of Demand Is 2 in Absolute

question 3

Multiple Choice

If the price elasticity of demand is 2 in absolute value, then when the price of Good X rises by 25 percent:

• A) the quantity demanded of Good X rises by 50 percent.
• B) the quantity demanded of Good X falls by 50 percent.
• C) the quantity demanded of Good X rises by 12.5 percent.
• D) the quantity demanded of Good X falls by 12.5 percent.

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Definitions:

Systematic Risk

The inherent risk of exposure to market changes that cannot be diversified away, affecting all securities in a similar manner.

Portfolio Beta

An evaluation of a portfolio's systemic risk in relation to the entire market's volatility.

Systematic Risk

The danger that applies to the whole market or a section of the market, which cannot be mitigated by diversifying investments.

Risk Premium

The additional return expected by an investor for taking on a higher risk compared to a risk-free asset.