(a) Why is the price elasticity of demand negative?

(b) When the price of a good is £20, the...

Question

(a) Why is the price elasticity of demand negative?

(b) When the price of a good is £20, the price elasticity of
demand is −0.7. Calculate the percentage change in demand Q when

(i) The price increases by 5%.

(ii) The price decreases by 8%.

Given the demand function, P = 60 − 0.2Q, calculate
the arc price elasticity of demand when: (a) The price decreases from £50 to
£40 and (b) the price decreases from £20 to £10.

Prince · Accepted Answer

Solution: 
a. Because of the inverse link between the price and the quantity demanded, or the fact that demand will decline when prices rise and rise when prices fall, price elasticity of demand becomes negative. The outcome will be negative because there is nearly always one decreasing variable.
b.

(a) Why is the price elasticity of demand negative? (b) When the price of a good is £20, the price elasticity of demand is −0.7. Calculate the percentage change in demand Q when (i) The price...

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