The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?
A) Gold sales will increase by 1,000%.
B) Gold sales will decrease by 40%.
C) Gold sales will decrease by 5%.
D) Gold sales will decrease by 80%.

Question

Quizplus · Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. With a price elasticity of 0.4 and a 200% increase in price, the quantity demanded will decrease by 0.4 * 200% = 80%.

The Price of Gold Increases by 200