Question

As the manager of a golf resort, you want to increase the number of tee times sold by 10%. Your staff economist (and junior caddy) has determined that the price elasticity of demand for tee times is –1.5. To increase sales by the desired amount, how much should you decrease the price of a tee time in percentage terms?
15.5%
20%
8%
6.67%

Answer 1

Answer:

6.67%

Explanation:

Given:

Aimed increase in the number of tee sold = 10%

The price elasticity of demand for tee = -1.5

Now,

Elasticity in demand is calculated using the formula as:

Elasticity in demand = $\frac{\textup{Percent change in quantity Demanded}}{\textup{Percent change in price}}$

on substituting the respective values, we get

-1.5 = $\frac{\textup{10}}{\textup{Percent change in price}}$

or

Percentage change in price = -6.67%

here the negative sign depicts the decrease in price

Hence,

The correct answer is option 6.67%