Suppose a fast-food chain determines that the price elasticity of demand for its hamburgers is 0.75,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 30%,and total expenditure will increase.
B)Quantity demanded will fall by 40%,and total expenditure will increase.
C)Quantity demanded will fall by 75%,and total expenditure will increase.
D)Quantity demanded will fall by 0.3%,and total expenditure will decrease.
E)Quantity demanded will fall by 0.4%,and total expenditure will decrease.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 0.75, indicating inelastic demand. A price increase from $4 to $6 is a 50% increase. The quantity demanded will fall by 0.75 * 50% = 37.5% (approximately 30% as per choice A). Since demand is inelastic, total expenditure will increase.

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