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12 December, 15:05

Billy Bob's Barber Shop knows that 5% increase in the price of their haircuts results in a 15% decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber shop

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  1. 12 December, 18:10
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    Price Elasticity of Demand = 3

    Explanation:

    Price Elasticity of demand is degree of responsive change in quantity demanded due to change in price.

    Price Elasticity of Demand:

    Percentage Change in Demand / Percentage change in Price

    Percentage Change in demand = 15%; Percentage change in price = 5%

    So, Price Elasticity of Demand = 15 / 5 = 3

    It is greater than 1, so the demand is elastic.
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