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    Question

    The price elasticity of import demand is 2. If the price

    of the imported good increases by 10%, what will be the approximate percentage change in import volume?
    A –5% Correct Answer Incorrect Answer
    B +5% Correct Answer Incorrect Answer
    C –20% Correct Answer Incorrect Answer
    D +20% Correct Answer Incorrect Answer
    E No change Correct Answer Incorrect Answer

    Solution

    • Price Elasticity of Demand (PED) = % change in quantity demanded ÷ % change in price • Rearranged:                   % △Quantity = Elasticity × %△ Price Given: • Elasticity = 2 • Price increases = +10% • Since it's an inverse relationship, the import quantity will decrease:                 % △Import Volume = 2 × (+10%) = –20%

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