Question

A price elasticity (E D) of −1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____. a. ten percent; increase; fifteen percent b. one percent; increase; 1.50 units c. one percent; decrease; 1.50 percent d. one unit; increase; 1.50 units e. one unit; decrease; 1.50 percent

Answer 1

Answer:

A price elasticity (E D) of −1.50 indicates that for one percent increase in price, quantity demanded will decrease 1.5% (correct answer is C)

Explanation:

Price elasticity of demand measures the % of change in the quantity demand over the % of change in the price. When a price increases demand fall.

%Q/%P=EP

-0.015/.01 = -1.5

In this case the demand is elastic so it is not recommended to rise the price because it will lower the revenues.