A firm has just increased its price by 35 percent over last year’s price, and it found that quantity sold decreased by 45 percent.
a. The firm comes to you and wants to know its price elasticity of demand.
Instructions: Round your answer to 2 decimal places.
You calculate the price elasticity of demand is equal to ______.
b. What additional information would you search for before you did your calculation?
a) I would check to see if consumer tastes or expectations had changed.
b) I would check to see if income had changed.
c) I would check to see if the prices of complements and substitutes had changed.
d) I would check to see if taxes or subsidies had changed.
e) I would check all of the above to make sure that all other things remained constant