Question

Suppose that legalizing the use of marijuana would decrease its price by 81 percent. If the price elasticity of demand for marijuana is ​-2.75​, what would be the percentage increase in the quantity of marijuana demanded from legalizing marijuana​? nothing percent. ​(Enter a numeric response using a real number rounded to two decimal​ places.)

Answer 1

222.75%

Explanation:

Elasticity of demand for marijuana

(dQ/Q)/(dP/P) = -2.75

If the price drops 81%, that is dP/P=-0.81

If we re-arrange the equation

dQ/Q= -2.75 * dP/P = -2.75*(-0.81) = 2.2275

The demand will be 222.75% higher if the prices drop by 81%