Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?
A)0.05
B)0.10
C)0.33
D)3.0

Question

Bailey's Barber Shop knows that a 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Bailey's Barber Shop?
A)​0.05
B)​0.10
C)​0.33
D)​3.0

Quizplus · Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is a 15% decrease in quantity demanded divided by a 5% increase in price, which equals 3. This indicates that the demand is elastic.

Bailey's Barber Shop Knows That a 5% Increase in the Price