Question

If the price elasticity of demand coefficient is 4, then:a. a price increase of 1% will reduce quantity demanded by 1/4%b. A price increase of 1% will reduce quantity demanded by 4%c. A price increase of 1% will reduce quantity demanded by 1/4%d. A price decrease of 1% will reduce quantity demanded by 1/4%

Answer 1

A price increase of 1% will reduce quantity demanded by 4%

Step-by-step explanation:

If the price elasticity is 4 then, this demand is highly responsive to changes in price.

So it will decrease by more than the price increase.

we must remember that the price-elasticity is determinate like:

↓QD / ΔP = price-elasticity

if the cofficient is 4 then a 1% increase in price:

↓QD / 0.01 = 4

↓QD = 0.04

Quantity demanded will decrease by 4%