If the Price of a Good Rises by 5 Percent

question 4

Multiple Choice

If the price of a good rises by 5 percent and the quantity demanded falls by 20 percent, then price elasticity of demand is equal to:

• A) 97
• B) 4
• C) 5
• D) 20

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Definitions:

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded for a given period.

Elastic

Describes the responsiveness of demand or supply to changes in price or income.

Free Entry

A market condition where there are no barriers or restrictions preventing new competitors from joining the market.

Long-Run Profits

Long-Run Profits refer to the sustained earnings a firm can achieve over time, considering all input costs are variable and market conditions may change.