Question

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. if you want to increase your sales quantity by 10 percent through a price change, what should you do to price?

Answer 1

Answer:  To increase sale by 10%, the seller must lower the price of the good by 12.5%.

Explanation: Price elasticity of demand measures the responsiveness of quantity demanded to a change in the price. Since, demand and price for a normal good are negatively related to each other, price elasticity is also negative. It can be calculated using,

$e_{d}=\frac{Precentage change in quantity demanded}{Percentage change in price} -0.8=\frac{10}{Percentage change in price} Percentage change in price = -\frac{10}{0.8} Percentage change in price = -12.5$

Therefore, to increase sale by 10%, the seller must lower the price of the good by 12.5%.