Given the price elasticity of demand for a good as 0.6. Suppose price of this good decreases by 10%, what would we expect to happen to the quantity demanded?
Answers
The quantity demanded of this good increases by 6%.
Explanation:
Given that,
Price elasticity of demand for a good = 0.6
Percentage decrease in price = 10%
So, we have to find out the percentage change in quantity demanded.
The price elasticity of demand measures the responsiveness of the quantity demanded to changes in its price.
Price elasticity of demand = Percentage change in quantity demanded ÷ Percentage change in price
0.6 = Percentage change in quantity demanded ÷ 10
0.6 × 10 = Percentage change in quantity demanded
6 % = Percentage change in quantity demanded
Therefore, the quantity demanded of this good increases by 6%.
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