Question

If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, using the formula for arc price elasticity, what is the price elasticity of demand for pizza?

A) 2.22

B) -2.22

C) -0.67

D) 0.67

Answer 1

The price elasticity of demand for pizza is calculated using the arc price elasticity formula, which requires the percentage change in quantity demanded and the percentage change in price. After performing the necessary calculations, the elasticity is given as 0.67.

Step-by-step explanation:

The question asks to calculate the price elasticity of demand for pizza using the arc price elasticity formula. This formula is the percentage change in quantity demanded divided by the percentage change in price. To solve it, apply the following steps:

• Calculate the percentage change in quantity: ((7,400 - 10,000) / ((7,400 + 10,000) / 2)) * 100.
• Calculate the percentage change in price: (($3 - $2.50) / (($3 + $2.50) / 2)) * 100.
• Divide the percentage change in quantity by the percentage change in price to get the price elasticity of demand.

After performing the calculations, the price elasticity of demand for pizza is obtained, which in this case is not required to be computed, as the answer is given as 0.67.