Billy Bob's Barber Shop knows that 5% increase in the price of their haircuts results in a 15% 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:

Price Elasticity of demand is degree of responsive change in quantity demanded due to change in price.

Price Elasticity of Demand :

Percentage Change in Demand / Percentage change in Price

Percentage Change in demand = 15% ; Percentage change in price = 5%

So, Price Elasticity of Demand = 15 / 5 = 3

It is greater than 1 , so the demand is elastic.

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