Fantastic Cuts Hair Salon knows that a 15% increase in the price of their haircuts will result in a 5% decrease in the number of haircuts sold.What is the elasticity of demand facing Fantastic Cuts?

Question

Quizplus · Accepted Answer

The formula for elasticity of demand is:
Elasticity of demand = (% change in quantity demanded)/ (% change in price)
Given that a 15% increase in price resulted in a 5% decrease in quantity demanded,
We can substitute these values into the formula to get:
Elasticity of demand = (-5%)/(15%) = -1/3
Since elasticity is usually expressed as a positive value, we take the absolute value of -1/3, which gives us 0.33. 
Therefore, the best choice is D) 0.33.

Fantastic Cuts Hair Salon Knows That a 15% Increase in the Price