John Doe estimates that the price elasticity of demand for new SUVs to be 0.75. If the price of SUVs rose by 15%; would the quan

Question

mario62 [17]

3 years ago

12

John Doe estimates that the price elasticity of demand for new SUVs to be 0.75. If the price of SUVs rose by 15%; would the quan

tity demanded of new SUVs rise or fall? By what percentage?

Mathematics

1 answer:

Charra [1.4K] · Answer 1 · 2022-07-12T14:42:47+03:00

If the coefficient of demand for the SUV is 0.75 this means that it has a relatively inelastic demand since it is less than. In other words, there is only a little alteration in demand when prices change.
So when the price of SUV rise by 15%, and it has a coefficient of 0.75, we can anticipate only 11.25% decrease in its demand. This is for the reason that the SUVs do not have many substitutes for it.
So to solve:
(x/15%) = 0.75
Then simply solve for x:
x = (0.75)(0.15) = 11.25%