Question

13. If price elasticity of demand = -1.5 and price increases by 20 percent, then
[A] demand will decrease by 30 percent.
[B] total revenue will increase.
[C] quantity demanded will decrease by 3 percent.
[D] total revenue will remain unchanged.
[E] quantity demanded will decrease by 30 percent.

Answer 1

Answer:

[E] quantity demanded will decrease by 30 percent.

Explanation:

If the price of a good is rised the quantity demanded decresases.

Price elasticity of demand, measures the porcentage of change in the quantity demanded over the porcentage of change in the price.

If the elasticity is -1.5 that means that the quantity demand will decrease more than the rise in the price.

PE=((Q2-Q1)/100)/((P2-P1)/100)

-1.5=((Q2-Q1)/100)/0.2

((Q2-Q1)/100)=(-1.5)*0.2=-0.3