If the Price Elasticity of Demand for a Product Is

question 211

Multiple Choice

If the price elasticity of demand for a product is 2.5, then a price cut from$2.00 to$1.80 will

• A)increase the quantity demanded by about 2.5 percent.
• B)decrease the quantity demanded by about 2.5 percent.
• C)increase the quantity demanded by about 25 percent.
• D)increase the quantity demanded by about 250 percent.

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Definitions:

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable due to market distortions like taxes or subsidies.

Producer Surplus

The difference between the amount producers are willing to sell a good for and the actual amount they receive.

Equilibrium

A state in which market supply and demand balance each other, resulting in stable prices.

Market

Any structured exchange where buyers and sellers interact to trade goods, services, or information.