Question

Sony is considering a 10 percent price reduction on its HD TV sets. If the price-elasticity coefficient for the sets in this price range is 0.75, then the price cut will cause

Answer 1

Answer:

A 7.5% increase in the quantity demanded

Explanation:

If the price elasticity of demand (PED) is 0.75, that means that for every 1% change in the price of a product, the quantity demanded for the product will inversely change by 0.75%. If the price increases, the quantity demanded decreases, and vice versa.

If Sony lowers the price of its TVs by 10%, and the PED = 0.75, then the quantity demanded will increase by = 10% x 0.75 = 7.5%