Remember that, to simplify our lives, we just use initial price and quantity as our bases for computing percentage changes for elasticities, even though this is not strictly correct.

Knowing that the price elasticity of demand is 2 tells us that any change in price will be met by a percentage change in quantity twice as large and in the opposite direction. An increase in price from $5 to $5.50 represents an increase of 10%, thus quantity demand will fall by 20%. Originally 1000 pairs were sold, 20% of 1000 is 200 so the new demand will be 200 less or 800.
Homework Questions