Answer to Question #188268 in Microeconomics for Malaika

Question

A Restaurant manager decides to lower the price of a featured sandwich from Rs. 500 

to Rs. 400, and she finds that sales during the week increase from 440 to 680 

sandwiches. Is demand elastic or Inelastic?

Answer 1

Elasticity: It is used for measuring the change in the behavior of buyers and sellers due to a change in price for a good or service.

Initial price= 500

New price=400

Initial quantity= 440

New quantity= 680

$PED=\frac{change \space in\space quantity}{change\space in \space price}\times\frac{P_1+P_2}{Q_1+Q2}$

$PED=\frac{680-440}{400-500}\times \frac{500+400}{440+680}$

$PED=\frac{240}{-100}\times \frac{900}{1120}$

$PED=-2.4\times 0.8036$

$PED=-1.93$

The demand for Sandwiches is elastic because it changes drastically when its price decreases.