Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
A) 0.15
B) 3.0
C) 0.10
D) 0.05

Question

Quizplus · Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, a 15 percent decrease in quantity demanded divided by a 5 percent increase in price gives an elasticity of 3.0 (15% / 5% = 3.0).

Billy Bob's Barber Shop Knows That a 5 Percent Increase