If the Price Elasticity of Demand for a product is -.8, and the product currently sells for $100 per unit, how much will demand for the product change (expressed as a percentage) if the price is increased to $110 per unit?
Answer
| The demand of the product will change(decrease) by 80% The change will be negative which implies a decrease in quantity demanded Answer = -80%ExplanationPrice Elasticity of Demand = % Change in Quantity Demanded / % Change in Price % Change in Quantity Demanded = x % Change in Price = ($110 – $100) / $100 * 100% = 10% Therefore -8 = x / 10% x = 10% * -8% X = -80% The negative implies that the quantity demanded will decrease by 80% |
