The price elasticity of demand of 2 indicates that the demand for a product is relatively elastic. Specifically, it means that for every 1% increase in price, the quantity demanded will decrease by 2%.
Now, if we consider a scenario where the price of a product increases by 10%, we can calculate the expected change in quantity demanded. Since the elasticity is 2, we would expect the quantity demanded to decrease by twice the percentage change in price:
- Percentage change in price = 10%
- Percentage change in quantity demanded = -2 * 10% = -20%
This means that a 10% increase in price will result in a 20% decrease in quantity demanded. Therefore, the correct answer is:
c) 20 decrease in quantity demanded.