The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 10% increase in price would lead to:
A)a 16% decrease in the quantity of gourmet coffee demanded.
B)a 16% increase in the quantity of gourmet coffee demanded.
C)an 8% decrease in the quantity of gourmet coffee demanded.
D)an 8% increase in the quantity of gourmet coffee demanded.

Question

The price elasticity of demand coefficient for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 10% increase in price would lead to:
A)​a 16% decrease in the quantity of gourmet coffee demanded.
B)​a 16% increase in the quantity of gourmet coffee demanded.
C)​an 8% decrease in the quantity of gourmet coffee demanded.
D)​an 8% increase in the quantity of gourmet coffee demanded.

Quizplus · Accepted Answer

A price elasticity of demand coefficient of 1.6 indicates that the demand for gourmet coffee is relatively elastic. This means that a 10% increase in price would lead to a proportionally larger decrease in quantity demanded. Specifically, a 10% increase in price would lead to a 16% decrease in the quantity of gourmet coffee demanded (1.6 x 10% = 16%). Therefore, the best choice is A.

The Price Elasticity of Demand Coefficient for Gourmet Coffee Is