If the price elasticity of demand for a good is 1.4,then a 14 percent increase in the quantity demanded must be the result of
A)a 0.1 percent decrease in the price.
B)a 1 percent decrease in the price.
C)a 10 percent decrease in the price.
D)a 19.6 percent decrease in the price.

Question

Quizplus · Accepted Answer

The formula for price elasticity of demand is (% change in quantity demanded)/(% change in price). Since the elasticity is 1.4, we know that a 1% decrease in price will result in a 1.4% increase in quantity demanded (1/1.4 = 0.714). Therefore, a 10% decrease in price will result in a 14% increase in quantity demanded (10 x 0.714 = 7.14, which is approximately 14). Thus, the correct answer is C, a 10% decrease in the price.

If the Price Elasticity of Demand for a Good Is