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3. If the estimated price elasticity of demand for foreign travel is 4: A) a 20% decrease in the price of foreign travel will

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Answer #1

If the estimated price elasticity of demand for foreign travel is 4, it means that a 20% decrease in the price of foreign travel will increase the quantity demanded by 80%.

Explanation

As per the law of demand, there exists a negative relationship between price and quantity demand. Hence, the price elasticity is always negative, if not specified in absolute terms.

price elasticity of demand=percentage change in quantity demanded/percentage change in price.

=80/-20=-4.

In absolute terms, the elasticity is 4

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