Assume the price elasticity of demand for U.S.Frisbee Co.Frisbees is 0.5.If the company increases the price of each Frisbee from $12 to $16,the number of Frisbees demanded will
A)Decrease by 14.3 percent.
B)Decrease by 33.3 percent.
C)Increase by 20.0 percent.
D)Increase by 7.0 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. Here, the price increases from $12 to $16, which is a 33.3% increase (($16-$12)/$12). Given an elasticity of 0.5, the quantity demanded would decrease by half the percentage change in price, which is 16.65% (33.3% * 0.5). The closest option to this calculation is a decrease of 14.3 percent.

Assume the Price Elasticity of Demand for U