If the price elasticity of demand for Harley-Davidson motorcycles is -1

Economics Dec 18, 2020

If the price elasticity of demand for Harley-Davidson motorcycles is -1.2 and quantity demanded increases by 24%, what is the change in price?

Expert Solution

Price decreases by 20 percent.

The elasticity is negative, implying that quantity demanded will increase when price decrease. Since we know quantity demanded increases, we therefore know price must have declined.

Suppose price decreases by x percent. By the definition of price elasticity, we know that quantity demand will increase by 1.2*x percent. Since we know that quantity demanded increases by 24%, we must have 1.2*x = 24, or x = 20.

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