If the price of a luxury car increases by 10% and the quantity demanded decreases by 15%, what does this indicate about the price elasticity of demand?

A 10% rise in price that cuts quantity demanded by 15% means the elasticity is 15% divided by 10%, or 1. 5 in magnitude. Because this number is greater than one, the demand is elastic—buyers cut back more than proportionally when the price goes up. Elastic demand shows that consumers are sensitive to price changes and can switch to other cars or reduce purchases. For example, if a luxury car cost $50,000 and its price jumps to $55,000, buyers might drop from 100 units sold to 85 units, reflecting the 15% drop.