In this case, we know that = 4, meaning that %Q = -4 x %P or that any change in price leads to a change in quantity 4 times greater, in percentage terms, and in the opposite direction. Therefore, a 1% increase in price will lead to a 4% decrease in quantity demanded.

9. If the price elasticity of demand for some good is estimated to be 4, then a 1% increase in price will lead to a:

1. 20% increase in quantity demanded. The law of demand makes it clear that with price increases (even by just 1%) quantity must fall, not increase. Therefore, this must be wrong.
2. 0.25% decrease in quantity demanded. Since demand is elastic (greater than 1) the quantity change must be greater than the price change. For this answer to be correct, elasticity would have to be 1/4 not 4.
3. 0.5% increase in quantity demanded. Since the price increases (even by just 1%), the law of demand makes it clear that quantity must fall, not increase; so this must be wrong.
4. 4% decrease in quantity demanded. Correct, as explained above.
5. 4% increase in quantity demanded. Since price increases (even by just 1%) the law of demand makes it clear that quantity must fall, not increase; so this must be wrong.