Question

f the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, calculate the arc price elasticity.

Answer 1

Answer:

arc price elasticity = -1.64

Explanation:

arc price elasticity = (change in quantity x average price) / (change in price x average quantity)

• change in quantity = 7,400 - 10,000 = -2,600 units
• average price = ($2.50 + $3) / 2 = $2.75
• change in price = $3 - $2.50 = $0.50
• average quantity = (10,000 + 7,400) / 2 = 8,700 units

arc price elasticity = (-2,600 x $2.75) / ($0.50 x 8,700) = -7,150 / 4,350 = -1.64