At Bailey's Barber Shop, a 5 percent increase in the price of haircuts results in a 15 percent decrease in the number of haircuts per day. Which of the following is the price elasticity of demand of haircuts?

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is (-15%)/(5%) = -3. The negative sign indicates that the demand decreases as the price increases, which is typical for most goods. The magnitude of 3 indicates the elasticity.

At Bailey's Barber Shop, a 5 Percent Increase in the Price