Refer to the following:
The estimated demand for a good is

$\hat { Q } = 4,800 - 16 P - 0.65 M - 1.5 P _ { R }$
where Q is the quantity demanded of the good, P is the price of the good, M is income, and
$P _ { R }$ is the price of related good R.
-If the price of the good rises by $10, all else constant, the quantity demanded will ________ by ________ units.
A) increase; 16 units
B) decrease; 160 units
C) decrease; 1.5 units
D) increase; 150 units

Question

Refer to the following:
The estimated demand for a good is

$\hat { Q } = 4,800 - 16 P - 0.65 M - 1.5 P _ { R }$ 
where Q is the quantity demanded of the good, P is the price of the good, M is income, and
 $P _ { R }$ is the price of related good R.
-If the price of the good rises by $10, all else constant, the quantity demanded will ________ by ________ units.
A) increase; 16 units
B) decrease; 160 units
C) decrease; 1.5 units
D) increase; 150 units

Quizplus · Accepted Answer

According to the law of demand, when the price of a good increases, the quantity demanded will decrease. The magnitude of the decrease in quantity demanded will depend on the price elasticity of demand. If demand is price elastic, then the percentage decrease in quantity demanded will be greater than the percentage increase in price, resulting in a large decrease in quantity demanded. If demand is price inelastic, then the percentage decrease in quantity demanded will be less than the percentage increase in price, resulting in a small decrease in quantity demanded. Without information about the price elasticity of demand, we cannot determine the exact magnitude of the decrease in quantity demanded, but we can say that it will be greater than a small amount and less than a large amount. Choice B is therefore the best answer, as it represents a significant decrease in quantity demanded.

Refer to the Following: the Estimated Demand for a Good Q^=4,800−16P−0.65M−1.5PR\hat { Q } = 4,800 - 16 P - 0.65 M - 1.5 P _ { R }Q^​=4,800−16P−0.65M−1.5PR​

Refer to the Following:
the Estimated Demand for a Good $\hat { Q } = 4,800 - 16 P - 0.65 M - 1.5 P _ { R }$