Answer :
Final answer:
The price elasticity of demand is indeed 2.00 here as it is calculated by dividing the percentage change in quantity demanded by the percentage change in price. Here, the percentage change in quantity demanded is a negative 20% and the percentage in price is a positive 10%, giving us a price elasticity of demand of -2.00 or 2.00 in absolute terms.
Explanation:
The statement is indeed true; the price elasticity of demand for bananas in this scenario is 2.00. It is calculated by using the formula: (percentage change in quantity demanded) divided by (percentage change in price). In this case, (-20%) divided by (+10%) equals -2.00. So, the price elasticity of demand is 2.00 in absolute terms, indicating that bananas are a highly elastic good in this case, as a change in price has a significant effect on the quantity demanded.
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