If the price elasticity of demand for a good is 4.0, then a 10 percent increase in price would result in a: A) 4% decrease in the quantity demanded. B) 40% percent decrease in the quantity demanded. C) 10% decrease in the quantity demanded. D) 400% percent decrease in the quantity demanded. the answer is B, but I’m having trouble seeing why…
You see the formula: Elasticity of demand = Percent change in quantity / Percent change in price = 4 --> Percent change in quantity = Elasticity of demand * Percent change in price = 4 * 10% = 40% And because Elasticity of Demand = 4 > 0 then quantity decreased
Thanks Thuy, That is an increase in quantity demanded, but the answer states it is a 40% decrease in quantity demanded?
I don’t think decrease or increase of demand are important in this exercise. The problem is to check your calculation of elasticity itself. It is obviously that the answer A), C) and D) are not accepted. The most correct answer should be B) without any reason of increase or decrease in demand quantity. That is my idea.
Someone needs to have a look at demand supply curve diagrams Price and Quantity are inversely related. You increase the price and fewer people are going to buy the product. http://www.investopedia.com/university/economics/economics4.asp
increase in price = decrease in demand. Sounds quite right.
Yeah. It is quite easy. Think about that as what you would do. If prices increase than you start buying less right (usually) yes? So if price elasticity is 4 and prices increase than it must be inversly related and have negative impact on the quantity you buy. And the basic to understand is the inverse relationship price and quantity in case of demand elasticity :)))
ah…brain spasm, what can I say??