Answer to Question #123270 in Microeconomics for Ahsan

Question

The price elasticity of demand for chicken is estimated to be -0.45. If the price of chicken Increased by 08 percent, what will be the expected percentage decrease in the quantity of chicken sold.

Answer 1

The price elasticity of demand is given by:

$$E_d = \dfrac{\text{\% Change in quantity demanded}}{\text{\% Change in price}}$$

If the elasticity is -0.45 and the price increases by 8%, then:

$$-0.45 = \dfrac{\text{\% Change in quantity demanded}}{\text{8\%}}\\[0.3cm] \text{\% Change in quantity demanded} = -0.45\times 8\%\\[0.3cm] \color{red}{\text{\% Change in quantity demanded} = -3.6\%}$$

The quantity demanded will decrease by 3.6%.