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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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?

Answer & Explanation (1)

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%

 

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