Question

If the estimated price elasticity of demand for foreign travel is 4:
a. the demand for foreign travel is inelastic.
b. a 20% decrease in the price of foreign travel will increase the quantity demanded by 80%.
c. a 10% increase in the price of foreign travel will increase the quantity demanded by 40%.
d. a 20% increase in the price of foreign travel will increase the quantity demanded by 80%.

Answer 1

Answer:

b. a 20% decrease in the price of foreign travel will increase the quantity demanded by 80%. 

Explanation:

A price elascitiy of 4 means demand is elastic. Price elasticity greater than 1 indicates demand is elastic.

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price.

Elastic demand is when a change in price leads to a change in quantity demanded.

If price increases and demand is price elastic, the quantity demanded falls.

If price falls and demand is price elastic, the quantity demanded rises.

If price elasticity is 4, 20% decrease in the price of foreign travel will increase the quantity demanded by 80%. 

Inelastic demand is when price elasticitiy is less than 1.

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