If the price elasticity of demand is -2.0, which statement is true?

• A. Demand is elastic.
• B. Demand is inelastic.
• C. Demand is unit elastic.
• D. Price changes have no effect on quantity demanded.

Answer: (A)

When the price elasticity of demand is -2.0, the magnitude is 2, which is greater than 1, so demand is elastic. This means quantity demanded changes by a larger percentage than the price does, in the opposite direction. For example, a 5% price increase would roughly lead to a 10% drop in quantity demanded, and a 5% price decrease would lead to a 10% rise. The negative sign just shows the inverse relationship, but the key point is the size: |elasticity| > 1 indicates elasticity. The other statements don’t fit because inelastic demand would have |elasticity| < 1, unit elastic would have |elasticity| = 1, and no effect of price changes would correspond to elasticity of zero.