Question

After increasing the price of ceiling fans from $60 to $75, a firm finds that its sales decline from 100 to 80 units. the product's price elasticity (expressed as a positive number) is

Answer 1

The formula of product's price elasticity is calculated by % Change in Quantity Demanded / % Change in Price.

% Change quantity Demanded= ($ 75 - $60) / $60 x 100%
= 25 %

% Change in price = ($80 - $100)/ $100 x 100% = -20%

product's price elasticity = 25/20 = 1.25 ( economists often drop the negative sign and express the price elasticity of demand as a positive number)