If a Company Increased Its Price from $100 to $120

question 161

Multiple Choice

If a company increased its price from $100 to $120 and the quantity demanded fell by 40%, the price elasticity of demand for this product is

• A) 2.
• B) 1/2.
• C) −1/2.
• D) −2.
• E) 4.

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Definitions:

Automobile Finance Company

A financial institution that provides loans to individuals or businesses specifically for the purpose of purchasing automobiles.

Market Signals

Indicators or signs that guide economic actors to make decisions based on current market conditions.

Moral Hazard

A situation where one party is more likely to take risks because they do not bear the full consequences of those risks.

Warranties

Guarantees issued by a manufacturer or seller to a buyer, promising to repair or replace a product if it fails within a certain period of time.