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

Initial Price =500

New Price =400

Initial Quantity =440

New Quantity =680

$PED =\frac {\Delta Q} {\Delta P} ×(\frac {P_2+P_2}{Q_1+Q_2})$

$PED =\frac {680-440} {400-500} ×(\frac {500+400}{440+680})$

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

$PED=-2.4×0.8036$

$PED=-1.93$

Hence the demand for sandwiches is elastic.