Question

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a:______ A. 1 percent reduction in price. B. 12 percent reduction in price. C. 40 percent reduction in price. D. 20 percent reduction in price.

Answer 1

Answer:

D) 20 percent reduction in price.

Explanation:

price elasticity of demand (PED) is defined as how much does the quantity demanded of a product or service change for every percent that its price changes.

in this case, the PED of widgets is 0.80, so if the quantity demanded increased by 16%, the price should have decreased by 16% / 0.80 = 20%