Question

Celine runs a sporting goods store and knows that the price elasticity of demand for her sports clothing line is -1.5. She is planning to lower prices by 20%. The percentage increase in the quantity demanded will be ________.

Answer 1

Based on Celine's price elasticity of demand, the increase in quantity demanded will be 30%.

How will the quantity demanded change?

This can be found as:

= Change in price x Price elasticity of demand

The change in price will be negative because the price is being reduced.

Solving gives:

= -20% x -1.5

= 30%

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