# The price elasticity of demand for imported tequila is estimated to be.docx

3. Feb 2023
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### The price elasticity of demand for imported tequila is estimated to be.docx

• 1. The price elasticity of demand for imported tequila is estimated to be -0.20 over a wide interval of prices. The federal government decides to raise import tariffs on foreign booze, causing the price to rise by 20%. Will tequila sales rise, fall, or stay the same, and by what percentage amount? Solution Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price -.20=% Change in Quantity Demanded/20% % Change in Quantity Demanded=4% Tequila sales will fall by 4%. Relatively Inelastic : The fourth category is relatively inelastic, in which the coefficient of elasticity falls in the range 0 < E < 1. With relatively inelastic demand, relatively large changes in price cause relatively small changes in quantity. Quantity is not very responsive to price. The percentage change in quantity is less than the percentage change in price. In this case, a 20 percent change in price induces a 4% percent change in quantity demanded