The price elasticity of demand for canned soup is estimated at -1.62.If the price of canned soup rises, sales revenue________.
A)falls by 162 per cent.
B)rises by 1.62 per cent.
C)falls.
D)rises.

Question

Quizplus · Accepted Answer

The negative sign of the elasticity coefficient implies an inverse relationship between price and quantity demanded. Therefore, when the price of canned soup increases, the quantity demanded will fall. Since the price elasticity of demand is greater than 1, the percentage change in quantity demanded will be greater than the percentage change in price. As a result, the total revenue generated from the sales of canned soup will fall.

The Price Elasticity of Demand for Canned Soup Is Estimated