Ghose and Han (2014) found that the elasticity of demand for Google Play apps is negative 3.7. This elasticity applies to a small college town where approximately 1,000 apps per month are sold. If price rises by 7 %, what would be the effect on quantity demanded? The quantity demanded will ▼ increase or decrease and by _____ percent. (Enter your response rounded to one decimal place.)
Price elasticity of demand tells us how much demand for a good will change due to change in the price of the good.
Formula:
Price elasticity of demand = % change in demand / % change in price
Given, the price elasticity of demand = - 3.7 , Increase in price = + 7%
Putting the above values in the formula we will get,
- 3.7 = % change in demand / +7%
% change in demand = - 25.9%
So, when the price of good increases by 7% then the demand for the good will decrease by 25.9%.
Get Answers For Free
Most questions answered within 1 hours.