The price elasticity of demand for imported whiskey is estimated to be -.20 over a wide interval of prices. The federal government decides to raise the import tariff on foreign whiskey, causing its price to rise by 20 percent. Will sales of whiskey rise or fall, and by what percentage amount?

Answer 1

percent increase in demand/percent increase in price = -.2
price increases by 20%
demand increases by -.2*20 = -4%
In other words demand decreases by 4%