If the price elasticity of demand for cigarettes is 0.55, and the price of cigarettes increases by 10 percent, then the quantity of cigarettes demanded will fall by:
A)0.55 percent.
B)5.5 percent.
C)55 percent.
D)550 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. So, if the price elasticity of demand is 0.55, and price increases by 10 percent, then quantity demanded must decrease by 5.5 (= 10 × 0.55)percent.

If the Price Elasticity of Demand for Cigarettes Is 0