Question

If the Price Elasticity of Demand for a product is -.8, and the product currently sells for $100 per unit, how much will demand for the product change (expressed as a percentage) if the price is increased to $110 per unit?

Answer 1

Answer: Percentage change in quantity would decrease by 12.5%.

Step-by-step explanation:

Since we have given that

Price elasticity of demand = -0.8

Price of each unit = $100

After change, price of each unit becomes = $110

% change in quantity would be

$\dfrac{New-old}{old}\times 100=\dfrac{110-100}{100}\times 100=10\%$

As we know the relation between price, quantity and elasticity.

$e_D=\dfrac{\text{\% change in quantity}}{\text{\%change in price}}\\\\-0.8=\dfrac{10\%}{x}\\\\x=\dfrac{10}{-0.8}\\\\x=-12.5\%$

Hence, Percentage change in quantity would decrease by 12.5%.