Question

In: Economics

If elasticity of demand for your firm’s services is – 4, this means that a 20%...

If elasticity of demand for your firm’s services is – 4, this means that a 20% increase in the price of your services would result in

a) an increase in your revenue.

b) a 5% decrease in the quantity of services demanded.

c) an 80% decrease in the quantity of services demanded.

d)   a 5% increase in the quantity of services demanded.

e) none of the above.

Solutions

Expert Solution

As we know, elasticity of demand is equal to percentage change in quantity demanded divided by the percentage change in price, therefore, in this case when price rises by 20%, the quantity demanded will decrease by 80% (-4 x 20%), so the right answer is option C.

Rahul Sunny answered 2 years ago
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