If the price elasticity of demand for a product is 1.5, then a price cut from$3.00 to$2.70 will
A)increase the quantity demanded by about 1.5 percent.
B)decrease the quantity demanded by about 1.5 percent.
C)increase the quantity demanded by about 15 percent.
D)increase the quantity demanded by about 30 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. A 1.5 elasticity means a 1% decrease in price leads to a 1.5% increase in quantity demanded. Here, the price decreases from $3.00 to $2.70, a 10% decrease ($0.30/$3.00), leading to a 15% increase in quantity demanded (1.5 * 10%).

If the Price Elasticity of Demand for a Product Is