203k views
4 votes
If a company increased its price from $100 to $120 and the quantity demanded fell by 40 percent, the price elasticity of demand for this product is________.

User JonVD
by
8.5k points

1 Answer

6 votes

Final answer:

The price elasticity of demand for the product, given a price increase from $100 to $120 and a 40% decrease in quantity demanded, is calculated as 2.0, indicating that the product is price elastic.

Step-by-step explanation:

The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price. In this case, if a company increases its price from $100 to $120, that is a 20% increase in price.

If the quantity demanded fell by 40 percent as a result, then the price elasticity of demand would be the absolute value of the percentage change in quantity demanded divided by the percentage change in price, which is |-40%|/20% = 2.

This indicates that the price elasticity of demand for this product is 2, meaning the product is elastic. Products with an elasticity greater than 1 are considered elastic, meaning consumers are quite responsive to price changes.

User Sadanand
by
8.2k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.