Butter producers know that the price elasticity of demand for butter is 0.2. If they want to increase sales by 4%, they will have to lower price by:
A)0.1%.
B)1%.
C)4%.
D)20%.

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is: % change in quantity demanded / % change in price. Given the elasticity is 0.2 and they want a 4% increase in sales, the price must decrease by 4% / 0.2 = 20%.

Butter Producers Know That the Price Elasticity of Demand for Butter