Own price elasticity of demand for silent velcro has been estimated at 0.9. Due to a...

Own price elasticity of demand for silent velcro has been estimated at 0.9. Due to a materials shortage, available quantity will decrease by 2%. What is the predicted percent change in price?

Expert Solution

Elasticity of demand is the change in quantity demanded due to change in own price of the commodity. It can be calculated as:

Elasticity of demand = % change in quantity demanded / % change in price

We have, Ed = 0.9, % change in qty. demanded = 2%

0.9 = 2% / % change in price

% change in price = 2/0.9

Percent change in price = 2.22%

It shows that if there is increase in price by 2.22%, it will lead to fall in quantity by 2%.

Rahul Sunny answered 2 years ago

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