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stich3 [128]
3 years ago
8

Suppose you know that the price elasticity of demand for your product is 0.5, and you are thinking about raising your price by 8

%. How much can you expect quantity to decrease?a. 8%b. 5%c. 4%d. We can't tell how much quantity will decrease
Business
1 answer:
satela [25.4K]3 years ago
4 0

Answer: Option (c) is correct.

Explanation:

Given that,

Price elasticity of demand = 0.5

Percentage increase in price = 8%

Price elasticity of demand = \frac{Percentage\ change\ in\ quantity\ demanded}{Percentage\ change\ in\ price}

0.5 =  \frac{Percentage\ change\ in\ quantity\ demanded}{8}

Percentage change in quantity demanded = 0.5 × 8

                                                                       = 4%

Therefore, if the price rises by 8% then as a result quantity demanded decreases by 4%.

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