If the price elasticity for demand is 1.75. What happens if that price is increased by...
If the price elasticity for demand is 1.75. What happens if that price is increased by 20 percent. Will that cause a qty demanded to increase?
Homework Answers
Answer- Price elasticity of demand refers to situation which causes the quantity demanded to increase/decrease due to a change in it’s price. If the price elasticity of demand is high than a small change in price would cause a greater change in the quantity demanded and vice versa.
Formula for calculating price elasticity of demand is PERCENTAGE CHANGE IN QUANTITY DEMANDED DIVIDED BY PERCENTAGE CHANGE IN PRICE.
So, if the price increased by 20 percent then following would be the change in the quantity demanded
1.75 = 20/ % change in qty. demanded
Therefore, %change in quantity demanded = 11.43 %
Since law of demand states that there is an inverse relation between between price and quantity demanded for a good or service hence if the proce increases then the quantity demanded would fall and vice versa.
Thus, here due an increase in proce by 20% the quantity demanded will fall by 11.43 %.
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