Suppose that the absolute value of the price elasticity of demand in the market for bread is equal to 2. Then, what would be the effect on the quantity demanded resulting from a 2% increase in the price of bread?

Question

Suppose that the absolute value of the price elasticity of demand in the market for bread is equal to 2.  Then, what would be the effect on the quantity demanded resulting from a 2% increase in the price of bread?

BlackTom AI · Accepted Answer

First, recall the concept: price elasticity of demand (Ed) = (% change in quantity demanded) / (% change in price). The problem states the absolute value of Ed is 2, which means |Ed| = 2. The price increases by 2%, so the percentage change in price is +2%. Because demand typically slopes downward, the quantity demanded changes in the opposite direction, so the % change in quantity demanded is Ed × %ΔP, with a negative sign: %ΔQd = -|Ed| × %ΔP = -2 × 2% = -4%. This indicates a 4% decrease in quantity demanded. Now examine the provided option: “It would fall by 4%.” This aligns with the calculation above, since a 2% price rise compounded with an elasticity of 2 yields a 4% drop in quantity demanded. If someone suggests different magnitudes, they would be ignoring the linear relation defined by the elasticity or misapplying the sign. In brief, because the elasticity is 2 in absolute value and the price increases by 2%, the quantity demanded falls by 4%, matching the option given. Moreover, the negative sign is essential: higher price reduces quantity demanded, not increases it. Any alternative phrasing that ignores the sign or the magnitude would be inconsistent with the elasticity concept. The key takeaway is the proportionality: a 2% price increase leads to a 2 × 2% = 4% drop in quantity demanded.}

Suppose that the absolute value of the price elasticity of demand in the market for bread is equal to 2. Then, what would be the effect on the quantity demanded resulting from a 2% increase in the price of bread?单项选择题

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