If the price elasticity of demand coefficient for herbal tea is estimated to be 0.5, what would a 10 percent decrease in price likely lead to?
A) a 10 percent decrease in the quantity of herbal tea demanded
B) a 5 percent decrease in the quantity of herbal tea demanded
C) a 10 percent increase in the quantity of herbal tea demanded
D) a 5 percent increase in the quantity of herbal tea demanded

Question

Quizplus · Accepted Answer

A price elasticity of demand coefficient of 0.5 indicates that the demand for herbal tea is relatively inelastic. Therefore, a 10 percent decrease in price would likely lead to a greater than proportionate increase in the quantity demanded. The formula for calculating the percentage change in quantity demanded is (elasticity coefficient) x (percentage change in price). Therefore, a 10 percent decrease in price multiplied by an elasticity coefficient of 0.5 results in a 5 percent increase in the quantity demanded.

If the Price Elasticity of Demand Coefficient for Herbal Tea