Question

When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent. The price-elasticity of demand coefficient for this product is: A. -1.5B. -0.15C. -0.67D. -67

Answer 1

Answer:

Correct option is (A)

Explanation:

Given:

Percentage change in price = 10%

Decrease in quantity demanded in terms of percentage = -15%

Price elasticity of demand measures the proportional change in quantity demanded due to proportional change in price. It is given by the following formula:

Price elasticity of demand = % change in quantity demanded / % change in price.

                                            = -15% / 10%

                                            = -1.5

A negative coefficient of price elasticity goes with the law of demand that states that increase in prices lead to decrease in quantity demanded.