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Scott
Scott, MIT Graduate
Category: General
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Patrick McCarthy estimated the price elasticity of demand ...

Resolved Question:

Patrick McCarthy estimated the price elasticity of demand for new cars to be 0.87. If the price of cars declined by 40%, one would expect the quantity of new cars demanded to:
a. fall 45.8%
b. rise 45.8%
c. fall 34.8%
d. rise 34.8%
Submitted: 9 years ago.
Category: General
Expert:  Scott replied 9 years ago.

Hi, and welcome back!

The formula is:

ED = %changequant/%changeprice

Plug in ED = 0.87 and %changeprice = 40

0.87 = %changequant/40

Multiply by 40:

%changequant = 34.8

The demand will rise by 34.8%. (Which makes sense, since the price goes down, more people will want to buy.)

Let me know if you have any questions,

Scott

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