Billy bob's barber shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. what is the elasticity of demand facing billy bob's barber shop?

Price Elasticity of demand =3

Explanation:

The elasticity of demand indicates how the quantity demanded change when the price changes. Is defined by this equation:

Price Elasticity of Demand (PED)= Percentage change in Q/ Percentage change in P

In this case, the problem is giving both percentage changes:

Percentage change in Q= -15% (It is negative because the number of haircuts decreased)

Percentage change in P= +5%

PED= -15%/5%= -3

The PED is always negative because the demand curve has a negative slope. This happens because at lower prices the quantity demanded is high and at high prices the quantity demanded is low.

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