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if the price elasticity of demand for a good is 0.8, then a 12 percent increase in the quantity demanded must be the result of

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Nuhulawal20go

A 12 percent increase in the quantity demanded must be the result of a 15% decrease in the price.

Given the data in the quest;

  • Price Elasticity of demand; [tex]_PE_d = 0.8[/tex]
  • Increase in the Quantity demanded; [tex]Q_d = 12\% = 0.12[/tex]

Price elasticity of demand [tex]_PE_d[/tex] is simply the estimate of the difference in the quantity purchased of a product with respect to the difference in its price.

Now, Price elasticity of demand [tex]_PE_d[/tex] by Percentage Method:

[tex]_PE_d[/tex]  = percentage change in quantity demand / percentage change in price

[tex]_PE_d =\frac{q_1-q_2}{q_1}\ *\ \frac{p_1}{p_2-p_1}[/tex]

That is; [tex]_PE_d =\frac{Q_d}{percentage\ change\ in\ price}[/tex]

We substitute in our values

[tex]0.8 = \frac{0.12}{percentage\ change\ in\ price}[/tex]

[tex]Percentage\ change\ in\ price = \frac{0.12}{0.8}[/tex]

[tex]Percentage\ change\ in\ price = 0.15 = 15\%[/tex]

Therefore, A 12 percent increase in the quantity demanded must be the result of 15% decrease in the price.

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