If the price elasticity of demand for a commodity is 0.5, a 10% increase in its price will lead to:

Solution Price Elasticity of Demand (Ed) is: Ed=% change in quantity demanded / % change in price Given Data

• Ed=0.5
• % change in price=+10%

We need to find: % change in quantity demanded Apply the Formula % change in quantity demanded=Ed×% change in price =0.5×10%=5% Because price increased, the quantity demanded will decrease. Interpretation When Ed < 1 (here 0.5), demand is inelastic, meaning the percentage change in quantity demanded is smaller than the percentage change in price. Final Answer: A. 5% decrease in quantity demanded