Question

If the price of a pack of post it notes increases from $2.00 to $2.80 and as a result quantity demanded falls from 160 to 80 units, what is the price elasticity of demand

Answer 1

Answer:

The price elasticity of demand is 1.25

Explanation:

The price Elasticity of Demand (PED) ia used to show the responsiveness of the demand of a good or service to a change in price. The PED can be either elastic (when the % change in demand is more than % change in price), or inelastic (when the % change in demand is less than the % change in price).

mathematically, it is represented as;

PED = (% change in demand) ÷ (% change in price)

Let us calculate the percentage changes.

% change in demand = (change in demand)/original demand × 100

= (160 - 80)/160 × 100 = 80/160 ×100 = 50%

% change in price = (change in price)/original price × 100

= (2.80 - 2.0)/2.0 × 100 = 0.8/2.0 × 100 = 40%

∴ PED = 50 ÷ 40 = 1.25 (elastic)