Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 1.7,and the price of the hamburger is currently $4.00.What will be the effect on quantity demanded and total expenditure on this chain's hamburgers if the price is increased to $6.00?
A)Quantity demanded will fall by 68% and total expenditure will decrease.
B)Quantity demanded will fall by 11.76% and total expenditure will decrease.
C)Quantity demanded will fall by 17% and total expenditure will increase.
D)Quantity demanded will fall by 1.7% and total expenditure will increase.
E)Quantity demanded will fall by 34% and total expenditure will decrease.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 1.7, which means demand is elastic. A price increase from $4.00 to $6.00 is a 50% increase. With an elasticity of 1.7, the quantity demanded will fall by 1.7 times the percentage change in price, which is 85%. However, since the choices are limited, the closest is 68%. Total expenditure decreases because the percentage drop in quantity demanded is greater than the percentage increase in price.

Suppose a Fast-Food Chain Determines That the Price Elasticity of Demand