Question

Suppose a t-shirt shop decides to decrease the price of their most popular shirt by 10%. Their sales increase from 200 shirts per day to 220 shirts per day as a result. 

Calculate PED and determine if demand for their shirt is elastic, inelastic or unit elastic.

Answer 1

$PED= \frac{Percentage Change in Quantity}{Percentage Change in Price}$

The Percentage Change in Quantity:

$=\frac{220-200}{200}\times100=10$ %

Percentage Change in Price:=10%

$PED=\frac{10}{10}=1.$

The demand is unit elastic. This is because any change in price leads to an equally proportion change in quantity demanded.