Question

John owns a bread bakery. When he increases the price of a loaf of bread from R10 to 

R12, the percentage in the quantity demanded is 5%. Calculate the price elasticity of 

demand for bread.

Answer 1

Initial Price=R10

Increased price=R12

Percentage change in quantity demanded=5%

 

Price elasticity of demand = %change in quantity demanded/%change in prices

 

%change in price= ((Final price-Initial price)/Initial price)*100

$=\frac{(12-10)}{10}\times100$

$=\frac{2}{10}\times100=20$

 

 

Price elasticity of demand=%change in quantity demanded/%change in prices

 

Price elasticity of demand$=\frac{5}{20}=0.25$

So, the price elasticity of demand for bread is 0.25