A product's demand increases by 15% when the price decreases by 10%. What is the price elasticity of demand?
Practice Questions
1 question
Q1
A product's demand increases by 15% when the price decreases by 10%. What is the price elasticity of demand?
1.5
1.0
0.5
2.0
Price Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price = 15% / -10% = -1.5.
Questions & Step-by-step Solutions
1 item
Q
Q: A product's demand increases by 15% when the price decreases by 10%. What is the price elasticity of demand?
Solution: Price Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price = 15% / -10% = -1.5.
Steps: 6
Step 1: Identify the percentage change in quantity demanded. In this case, it is an increase of 15%.
Step 2: Identify the percentage change in price. Here, it is a decrease of 10%, which we will represent as -10%.
Step 3: Write the formula for price elasticity of demand: Price Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price.
Step 4: Substitute the values into the formula: Price Elasticity of Demand = 15% / -10%.
Step 5: Calculate the result: 15 divided by -10 equals -1.5.
Step 6: Interpret the result. A price elasticity of -1.5 means that the demand is elastic, as the absolute value is greater than 1.
