Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?
A) Demand is perfectly inelastic.
B) Demand is inelastic, but not perfectly.
C) Demand is perfectly elastic
D) Demand is elastic, but not perfectly.

Question

Quizplus · Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, since sales revenue increased when the price increased, it indicates that the quantity demanded did not decrease proportionally to the price increase, which means demand is inelastic. However, because there was still a 3 percent increase in sales revenue, it shows that demand is not perfectly inelastic (which would imply no change in quantity demanded regardless of price changes). Therefore, the demand is inelastic but not perfectly.

Suppose That a Jewelry Store Found That When It Increased