Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

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paynedeforest3741 paynedeforest3741

27-08-2019
Business

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Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

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sofiasuarez1307 sofiasuarez1307 · Answer 1 · 2019-08-28T18:45:28+02:00

Answer:

Price Elasticity of demand =3

Explanation:

The elasticity of demand indicates how the quantity demanded change when the price changes. Is defined by this equation:

Price Elasticity of Demand (PED)= Percentage change in Q/ Percentage change in P

In this case, the problem is giving both percentage changes:

Percentage change in Q= -15% (It is negative because the number of haircuts decreased)

Percentage change in P= +5%

PED= -15%/5%= -3

The PED is always negative because the demand curve has a negative slope. This happens because at lower prices the quantity demanded is high and at high prices the quantity demanded is low.