If the price-elasticity of demand for chips is 0.75, then a 20 percent increase in price would result in a 15 percent decrease in the demand quantity.
As per the question statement, the price-elasticity of demand for chips is 0.75 and there is a 20 percent increase in price.
We are required to calculate the resulting decrease in the demand quantity by percent, based on the conditions mentioned in the statement above.
Here, given Price-Elasticity of Demand = 0.75
Also given the percent increase in price = 20
Now, we know that,
= [(Percentage change in quantity demanded)/(Percentage change in price]
Or, [0.75 = (x/20)]...[Assuming "Percentage change in quantity demanded" to be "x"]
Or, [x = (20 * 0.75)]
Or, [x = 15]
That is, If the price-elasticity of demand for chips is 0.75, then a 20 percent increase in price would result in a 15 percent decrease in the demand quantity.
- Price-Elasticity of Demand: Price Elasticity of Demand is a measurement of the change in the consumption of a product in relation to a change in its price and is expressed mathematically as the quotient of (Percentage Change in Quantity Demanded) divided by (Percentage Change in Price)
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