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Ghose and Han (2014) found that the elasticity of demand for Google Play apps is negative...

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.)

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Answer #1

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%.

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