Butch's Barber Shop knows that it faces an elasticity of demand equal to 3.0 over the relevant range of its demand curve. A 1% increase in its price will do what to the number of haircuts demanded from Butch's Barber Shop?
A)It will increase by 0.33%
B)It will increase by 3.0%
C)It will decrease by 0.33%
D)It will decrease by 3.0%

Question

Butch's Barber Shop knows that it faces an elasticity of demand equal to 3.0 over the relevant range of its demand curve. A 1% increase in its price will do what to the number of haircuts demanded from Butch's Barber Shop?
A)​It will increase by 0.33%
B)​It will increase by 3.0%
C)​It will decrease by 0.33%
D)​It will decrease by 3.0%

Quizplus · Accepted Answer

An elasticity of demand of 3.0 indicates that a 1% increase in price will result in a 3% decrease in quantity demanded, given that the elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Therefore, a 1% increase in price at Butch's Barber Shop will decrease the number of haircuts demanded by 3%.

Butch's Barber Shop Knows That It Faces an Elasticity of Demand