John Doe estimates that the price elasticity of demand for new SUVs to be 0.75. If the price of SUVs rose by 15%; would the quantity demanded of new SUVs rise or fall? By what percentage?

Question

Mathematics

Santana

14 February, 16:48

John Doe estimates that the price elasticity of demand for new SUVs to be 0.75. If the price of SUVs rose by 15%; would the quantity demanded of new SUVs rise or fall? By what percentage?

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Jazmin Marks · Answer 1

If the coefficient of demand for the SUV is 0.75 this means that it has a relatively inelastic demand since it is less than. In other words, there is only a little alteration in demand when prices change.

So when the price of SUV rise by 15%, and it has a coefficient of 0.75, we can anticipate only 11.25% decrease in its demand. This is for the reason that the SUVs do not have many substitutes for it.

So to solve:

(x/15%) = 0.75

Then simply solve for x:

x = (0.75) (0.15) = 11.25%