When the Price of a Product Is Increased 5 Percent

question 379

Multiple Choice

When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is

• A)0.4.
• B)4.
• C)2.5.
• D)25.

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Definitions:

Market Equilibrium

The condition where the quantity of a good or service demanded equals the quantity supplied, resulting in no incentive for price to change.

Output Level

The quantity of goods or services produced by a business within a given period.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in other words, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing it.

Long-Run

A period of time in economics during which all factors of production and costs are variable, allowing for complete adjustment to changes.