If the price elasticity of demand was 4.0 (in absolute terms), a 10% off sale would lead to:
A)a 40% increase in purchases by customers.
B)a 40% decrease in purchases by customers.
C)a 2.5% increase in purchases by customers.
D)a 2.5% decrease in purchases by customers.
E)none of the above

Question

Quizplus · Accepted Answer

The formula for calculating the percentage change in quantity demanded is as follows:

Percentage Change in Quantity Demanded = Price Elasticity of Demand x Percentage Change in Price

Substituting the given values:

Percentage Change in Quantity Demanded = 4.0 x (-10%) = -40%

Since the absolute value of elasticity is being used, we ignore the negative sign and conclude that a 10% off sale would lead to a 40% increase in purchases by customers. Therefore, the correct answer is A.

If the Price Elasticity of Demand Was 4