Answer to Question #307514 in Microeconomics for Flavias

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:

A​-0.25

B​-0.3

C​-0.83

D​-1.2

Answer 1

Price elasticity of demand = percentage change in quantity/percentage change in price

percentage change in quantity = $​ \frac{60-45}{{105}/2}$

=$​ \frac{15}{52.5}*100$

=28.57%

percentage change in price = $​$ $​ \frac{2.60-2.00}{4.6/2}$

​ = $​ \frac{0.6}{2.3}$$*100$

=26.09%

price elasticity of demand = $​ \frac{28.57}{26.09}$ = -1.095

the answer is approximately D.

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