Question

3. The price elasticity of demand for beef is about 0.60. Other things equal, this means that a 20 percent increase in the price of beef will cause the quantity of beef demanded to:

A.            increase by approximately 12 percent.
B.            decrease by approximately 12 percent.
C.            decrease by approximately 32 percent.
D.            decrease by approximately 26 percent.

Answer 1

As we know, price elasticity of demand is equal to percentage change in quantity demanded divided by the percentage change in price, therefore, in this case the change in quantity demanded will be equal to 0.60 times the 20% which is equal to 12%. Also, when the price increases the quantity demanded decreases, therefore, we can say that a 20% increase in the price of beef will cause the quantity demanded of beef to decrease by approximately 12%, so the right answer is option B.