Question

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is:a. 2.5b. 0.4c. 0.5d. 5

Answer 1

option (a) 2.5

Step-by-step explanation:

Given:

Price cuts of dolls = 10 percent

Quantity of the dolls sold increases = 25 percent

Now,

Price elasticity of demand for dolls =
`\frac{\textup{Percentage change in Quantity sold}}{\textup{Percentage change in Price}}`

on substituting the respective values, we get

Price elasticity of demand for dolls =
`\frac25}{10}`

or

Price elasticity of demand for dolls = 2.5

Hence, the correct answer is option (a) 2.5