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.

Question

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.

Quizplus · Accepted Answer

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

% change in quantity demanded = (Price Elasticity of Demand) x (% change in price).

Given that the price elasticity of demand is 4 and the percentage change in price is 10%, we can calculate the percentage change in quantity demanded as:

% change in quantity demanded = (4) x (10%) = 40%.

This means 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