Which of the following is an example of price elasticity of demand? A. Banana farmers enjoyed higher prices when the demand for bananas increased B. When the price of bananas increased by 5 percent and nothing else changed, the quantity of bananas demanded decreased by 2 percent C. Richer people buy fewer bananas than poorer people D. When the price of bananas increased by 5 percent and incomes slumped, banana sales decreased by 5 percent.

Question

Which of the following is an example of price elasticity of demand? A. Banana farmers enjoyed higher prices when the demand for bananas increased B. When the price of bananas increased by 5 percent and nothing else changed, the quantity of bananas demanded decreased by 2 percent C. Richer people buy fewer bananas than poorer people D. When the price of bananas increased by 5 percent and incomes slumped, banana sales decreased by 5 percent.

Answer 1

The correct answer is B. When the price of bananas increased by 5 percent and nothing else changed, the quantity of bananas demanded decreased by 2 percent.Price elasticity of demand refers to the responsiveness of the quantity demanded of a good to a change in its price. In this case, when the price of bananas increased by 5 percent, the quantity demanded decreased by 2 percent, indicating that the demand for bananas is elastic.

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