If the elasticity of demand is 3,and the price rises by 15 percent,then
A)The quantity demanded will increase by 5 percent.
B)The quantity demanded will fall by 45 percent.
C)The quantity demanded will rise by 4.5 percent.
D)The percentage change in quantity demanded will fall as income rises.

Question

Quizplus · Accepted Answer

According to the formula for elasticity of demand, % change in quantity demanded = % change in price divided by the elasticity of demand. Therefore, if the elasticity of demand is 3 and the price rises by 15 percent, the % change in quantity demanded will be -15/3 = -5. Thus, the quantity demanded will fall by 45 percent (5% x 3 = 15%). Option B is the correct answer. Option A and C are incorrect as they suggest an increase in quantity demanded, which contradicts the definition of elasticity. Option D is irrelevant to the question.

If the Elasticity of Demand Is 3,and the Price Rises