Question

It has been estimated that the price elasticity of demand for attending baseball games is 0.23. Other things held constant, a 10 percent increase in attendance can be explained by a:
A. 43.48 percent fall in the price of a ticket.
B. 43.48 percent rise in the price of a ticket.
C. 23 percent fall in the price of a ticket.
D. 23 percent rise in the price of a ticket.

Answer 1

Answer:

Correct option: (A) 43.48% fall in the price of a ticket.

Step-by-step explanation:

The price elasticity of demand is defined as the percent change in quantity demanded to the percent change in the price.

$Price\ elasticity\ of\ demand=\frac{\%\ change\ in\ quantity\ demanded}{\%\ change\ in\ price}$

Given:

Price elasticity of demand = 0.23

% change in quantity demanded = 10

Compute the % change in price as follows:

$Price\ elasticity\ of\ demand=\frac{\%\ change\ in\ quantity\ demanded}{\%\ change\ in\ price}\\0.23=\frac{10}{\%\ change\ in\ price}\\{\%\ change\ in\ price}=\frac{10}{0.23}\\=43.4783\\\approx43.48$

Thus, a 10 percent increase in attendance can be explained by a 43.48% fall in the price of a ticket.