Question

A cake retailer increases the price of its cakes from £2.00 to £2.60 per cake and the quantity demanded decreases from 60 cakes per day to 45 cakes per day.

The price elasticity of demand for the retailer’s cake is

Answer 1

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

$=\frac{45-60}{2.6-2}×\frac{2}{60}$

$=\frac{-15}{0.6}×\frac{2}{60}= \frac{-30}{36}$ = 0.833