Suppose we estimate that the demand elasticity for fine leather jackets is -.7 at their current prices.Then we know that:
A) a 1% increase in price reduces quantity sold by .7%.
B) no one wants to buy leather jackets.
C) demand for leather jackets is elastic.
D) a cut in the prices will increase total revenue.
E) leather jackets are luxury items.

Question

Quizplus · Accepted Answer

A negative elasticity means that the quantity demanded decreases as price increases. The magnitude of the elasticity (-.7) tells us that a 1% increase in price will result in a .7% decrease in quantity demanded. This is consistent with answer choice A.

Suppose We Estimate That the Demand Elasticity for Fine Leather