Suppose a new manufacturing technology results in an expansion in the supply of golf balls in the United States of 15%.If the elasticity of demand of golf balls sold in the US is -0.4,the new equilibrium price will be

Question

Quizplus · Accepted Answer

Given, 
% change in supply = 15%
Elasticity of demand = -0.4

We can use the following formula to find the percentage change in price:

% change in price = (% change in supply) / (elasticity of demand)

% change in price = 15% / (-0.4) = -37.5%

The negative sign indicates that the price will fall. Therefore, the new equilibrium price will be 37.5% lower than the original price. Hence, the correct choice is D.

Suppose a New Manufacturing Technology Results in an Expansion in the Supply