A dealer in deep freezer in creasd the Price of his product from 450 to 500 and sales dropped from 800 unit…

Question

A dealer in deep freezer in creasd the Price of his product from 450 to 500 and sales dropped from 800 unit to 600 unit. Calculate the price elasticity of demand. 2. What is price elasticity of demand?

ScanSolve AI Tutor · Accepted Answer

Here are the solutions to your questions.

1.

Identify the initial and final prices and quantities.
Initial Price ( $P_1$ ) = N450
New Price ( $P_2$ ) = N500
Initial Quantity Demanded ( $Q_1$ ) = 800 units
New Quantity Demanded ( $Q_2$ ) = 600 units
Calculate the percentage change in quantity demanded.
$\text{Percentage change in quantity demanded} = \frac{Q_2 - Q_1}{Q_1} \times 100\%$ $= \frac{600 - 800}{800} \times 100\%$ $= \frac{-200}{800} \times 100\%$ $= -0.25 \times 100\% = -25\%$
Calculate the percentage change in price.
$\text{Percentage change in price} = \frac{P_2 - P_1}{P_1} \times 100\%$ $= \frac{500 - 450}{450} \times 100\%$ $= \frac{50}{450} \times 100\%$ $= \frac{1}{9} \times 100\% \approx 11.11\%$
Calculate the price elasticity of demand (PED).
$\text{PED} = \frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$ $= \frac{-25\%}{11.11\%}$ $= -2.25$
The absolute value of price elasticity of demand is typically reported.
The price elasticity of demand is $\boxed{2.25}$ .

2.
Price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good or service to a change in its price. It indicates how much the quantity demanded changes in percentage terms for a one percent change in price.

A dealer in deep freezer in creasd the Price of his product from 450 to 500 and sales dropped from 800 unit to 600 unit. Calculate the price elasticity of demand. 2. What is price elasticity of demand?

Step-by-step solution

Identify the initial and final prices and quantities.

Calculate the percentage change in quantity demanded.

Calculate the percentage change in price.

Calculate the price elasticity of demand (PED).

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