ECON MACRO 5th Edition by William McEachern

Exercise 1

CALCULATING PRICE ELASTICITY OF DEMAND Suppose that 50 units of a good are demanded at a price of $1 per unit. A reduction in price to $0.20 results in an increase in quantity demanded to 70 units. Show that these data yield a price elasticity of 0.25. By what percentage would a 10 percent rise in price reduce the quantity demanded, assuming price elasticity remains constant along the demand curve?