Question

If the price elasticity of demand of Hot Wheel cars equals 3.85 and the percent change in price is 7 percent, then the quantity demanded of windup toys will be __.

a. 12 percent. b. 27 percent. c. 16 percent. d. 19 percent.

Answer 1

We know that price elasticity of demand=Percent changne in quantity demanded/Percent change in price

So,

3.85=Percent changne in quantity demanded/7%

Percent change in quantity demanded=3.85*7%=26.95%

(Note that price elasticity of demand is always negative i.e. percent change in quantity demanded and percent change in price move in opposite direction)

Correct option is

b. 27%