Price elasticity of demand for Michelle’s muffins is 1.7 in California while sold for $3.00 per muffin. If the price was to increase to $3.30 what percentage decline would we expect in the quantity demanded?

Price elasticity of demand for Michelle’s muffins is 1.7 in California while sold for $3.00 per muffin. If the price was to increase to $3.30 what percentage decline would we expect in the quantity demanded?

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Answer

• Quantity demanded will decline by 17%
  Explanation:
  Price elasticity of demand = 1.7
  PED = %change in quantity demanded / %change in price
  PED = 1.7
  %change in quantity demanded = ?
  %change in price = ($3.3 – $3) / $3 * 100%
  3 / 3 * 100% = 10%
  PED = %change in Q / %change in P
  1.7 = %Q / 10%
  %Q = 10% * 1.7
  %Q = 17%
  The quantity will change by 17%
  Since quantity demanded and price are negatively related, an increase in one causes a decrease in the other.
  If price increases, quantity demanded decreases
  Quantity demanded will therefore decrease by 17%