The price elasticity of demand is 5.0 if a 10 percent increase in price results in a ________ decrease in the quantity demanded.

• A. 10 percent
• B. 50 percent
• C. 2 percent
• D. 5 percent

Answer: (B)

Price elasticity of demand measures how responsive the quantity demanded is to price changes. It is the percentage change in quantity demanded divided by the percentage change in price, using the absolute value. If the elasticity is 5.0 and price goes up by 10%, the quantity demanded must fall by 5.0 × 10% = 50%. So the decrease is 50%. This reflects a highly elastic demand, where a relatively small price change causes a large change in quantity. For the other options, a 10% drop would imply elasticity of 1, a 2% drop implies elasticity of 0.2, and a 5% drop implies elasticity of 0.5, none of which match the given elasticity.