If the elasticity coefficient of demand for coconuts is .40, then a 20% fall in price will result in:
A)a 20% rise in quantity demanded.
B)an 8% rise in quantity demanded.
C)a 200% rise in quantity demanded.
D)a 50% rise in quantity demanded.

Question

Quizplus · Accepted Answer

The formula for calculating the percentage change in quantity demanded is:

Percentage change in quantity demanded = elasticity coefficient of demand x percentage change in price

Substituting the given values:

Percentage change in quantity demanded = 0.40 x (-20%) 
Percentage change in quantity demanded = -8%

The negative sign indicates that quantity demanded will decrease, but we are interested in the magnitude of the change, which is 8%. Therefore, the 20% fall in price will result in an 8% rise in quantity demanded (option B).

If the Elasticity Coefficient of Demand for Coconuts Is