Suppose the Value of the Price Elasticity of Demand Is

question 171

Multiple Choice

Suppose the value of the price elasticity of demand is -3.What does this mean?

• A)A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
• B)A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
• C)A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
• D)A $1 increase in price causes quantity demanded to fall by 3 units.

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Definitions:

Substitution Effect

The change in consumption patterns due to a change in relative prices, leading consumers to replace more expensive items with cheaper alternatives.

Income Effect

The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Substitution Effect

The change in consumption patterns due to a change in the relative prices of goods, making consumers substitute one good for another.

Normal Good

A Normal Good is a type of good for which demand increases when income increases, and vice versa, holding all other factors constant.