The price elasticity of demand for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5 percent increase in price would lead to a:
A)16 percent decrease in the quantity of gourmet coffee demanded.
B)16 percent increase in the quantity of gourmet coffee demanded.
C)8 percent decrease in the quantity of gourmet coffee demanded.
D)8 percent increase in the quantity of gourmet coffee demanded.
E)10 percent increase in the quantity of gourmet coffee demanded.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is the percent change in quantity demanded divided by the percent change in price. In this case, the elasticity is 1.6, which means that a 1 percent increase in price would lead to a 1.6 percent decrease in the quantity of gourmet coffee demanded. Therefore, a 5 percent increase in price would lead to a 8 percent decrease in the quantity of gourmet coffee demanded (5 x 1.6 = 8). So the correct answer is C.

The Price Elasticity of Demand for Gourmet Coffee Is Estimated