If the Absolute Price Elasticity of Demand Is 2, a 10

question 180

Multiple Choice

If the absolute price elasticity of demand is 2, a 10 percent increase in the price will cause

• A) the quantity demanded to decrease by 2 percent.
• B) the quantity demanded to decrease by 20 percent.
• C) the quantity demanded to decrease by 5 percent.
• D) the quantity demanded to decrease by 0.2 percent.

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Definitions:

Operating Leverage

Operating Leverage is a measure of how revenue growth translates into growth in operating income, determined by the proportion of fixed versus variable costs a company has.

Variable Cost

Operational expenses of a business that alter in accordance with the level of activity.

Tax Rate

A tax rate is the percentage at which an individual or corporation is taxed on their income or profits.

Degree of Operating Leverage

A financial metric that measures the sensitivity of a company's operating income to its sales.