The price elasticity of demand for widgets is 0.8. Assuming no change in the demand curve for widgets, an increase in sales of 16 percent implies a(n)
A)1 percent reduction in price.
B)12 percent reduction in price.
C)20 percent reduction in price.
D)40 percent reduction in price.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is % Change in Quantity Demanded / % Change in Price. Given an elasticity of 0.8 and a 16% increase in sales (quantity demanded), we solve for the % change in price: 16% / 0.8 = 20%. Thus, a 20% reduction in price is implied.

The Price Elasticity of Demand for Widgets Is 0