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JAMB Economics 2015 past questions and answers

1 questions. Try each one, then open the answer to check yourself and read the explanation.

Question 18

Elasticity

The elasticity of demand for a firm's product is 2. If the firm reduces its price by 20 percent, its sales revenue will increase by

  1. A.10 percent
  2. B.20 percent
  3. C.30 percent
  4. D.40 percent.
Show the answer and explanation

Answer: B (20 percent)

Explanation

With elasticity 2, a 20% price cut raises quantity by 2 × 20% = 40%. Revenue change ≈ % change in quantity + % change in price = 40% − 20% = 20%.

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