Question

Pol roger champagne sells 10000 bottles a month in the uk at 30 a time. Its price elasticity of demand (PED) is -0.4 and its income elasticity of demand (YED) is 6. What is the percentage change in quantity demanded if the price of the champagne increases by 10

1) 2%
2) 4%
3) 6%
4) 8%

Answer 1

The price elasticity of demand for Pol Roger champagne is -0.4, meaning that a 10% increase in price will result in a 4% decrease in quantity demanded.

Step-by-step explanation:

The price elasticity of demand (%ΔQd/ΔP) is a measure of how responsive quantity demanded is to a change in price. A price elasticity of demand with a magnitude less than 1 (-1 to 0) indicates an inelastic demand, and a change in price will result in a proportionally smaller change in quantity demanded. On the other hand, a price elasticity of demand with a magnitude greater than 1 (>1) indicates an elastic demand, and a change in price will result in a proportionally larger change in quantity demanded. In this case, the price elasticity of demand (PED) for Pol Roger champagne is -0.4, which means that a 10% increase in price will result in a 4% decrease in quantity demanded.