Answer to Question #274000 in Microeconomics for Ramil

Question

Ralph advertises to sell cookies for Php 200 a dozen. He

sells 75 dozen and decides that he can charge more. He raises the price

to Php 300 a dozen and sells 45 dozen. What is the elasticity of demand?

Answer 1

 The elasticity of demand (PED) is:

$PED=\frac{\Delta Q}{\Delta P}$

where;

$\Delta Q=\frac{Q_2-Q_1}{Q_1}=\frac{45-75}{75}=-0.4$

$\Delta P=\frac{P_2-P_1}{P_1}=\frac{300-200}{200}=0.5$

$PED=\frac{-0.4}{0.5}=-0.8$

 The elasticity of demand is -0.8 that is negative. This means the increase in price leads to decrease in quantity demanded in the market.