Question

A shift in the demand curve for pretzels increases the price of pretzels from $1.25 to $1.75 and its quantity demanded from 30 million to 35 million. the price elasticity of demand for pretzels is _____. ?

Answer 1

Initial price, P₀ = $1.25
Initial demand, Q₀ = 30 million

New price, P₁ = $1.75
New demand, Q₁ = 35 million

By definition, price elasticity is

`\eta = ((Q_(1)-Q_(0))/(Q_(1)+Q_(0)))/((P_(1)-P_(0))/(P_(1)+P_(0)))`
η = (5/65)/(0.5/3)
= 0.4615

Answer: η = 0.46 (nearest hundredth)

This means that greater demand makes it possible to increase the price. Usually, this is not the case because lowering the price increases sales.