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?
(a)-6.67%
(b)-15.5%
(c)-8%
(d)-20%

Answer 1

Answer:

The price of tee-time should be reduced by 6.67%.

Explanation:

The price elasticity of demand for tee times is –1.5.  

The manager wants to increase the number of tee times sold by 10%.  

The price elasticity of demand shows the change in quantity demanded due to a change in the price level. It is the ratio of the percentage change in quantity demanded and percentage change in price.  

Price elasticity = $\frac{\% \Delta Q}{\% \Delta P}$

- 1.5 = $\frac{10 \%}{\% \Delta P}$

$\% \Delta P = \frac{10}{- 1.5}$

$\% \Delta P = - 6.67 \%$