What does the price elasticity of demand for a good or service of -2.5 tell US?
A. The price changes by $2.50 when quantity changes by one unit B. Quantity demanded decreases by 2.5% when the price rises by 1% C. The price rises by 2.5% when quantity demanded falls by 1% D. Quantity demanded falls by 2.5 units when price changes by $1
The answer to this is letter B. Whenever the price of the item increases by 1%, the demand for the product decreases by 2.5%. This is something that a lot of companies should consider when they are thinking about pricing the various products that they have. There are some consumers who choose different items because they are not very expensive.
Some of them even purchase items that they do not need simply because of the price. If you would be able to prove that your item is worth it even with the price increase, people will still keep on purchasing the product but if you get the results mentioned in the given, you may need to think twice.