Question

A product sells 550 units at a price of $160 each. When price is increased to $180 each, sales decrease to 400. Recalling Price Elasticity of Demand (see formula sheet), here...

Group of answer choices
O PED equals 1.00 and demand is unitary
O PED equals 2.1818 and demand is elastic
O PED equals 0.4583 and demand is elastic
O PED equals 2.1818 and demand is inelastic
O PED equals 0.4583 and demand is inelastic

Answer 1

The price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. In this case, the PED is -0.4583, indicating elastic demand.

Step-by-step explanation:

The price elasticity of demand (PED) measures the responsiveness of the quantity demanded to a change in price. We can calculate the PED using the formula:

PED = (% change in quantity demanded) / (% change in price).

Given that the initial price is $160 and the final price is $180, and the initial quantity sold is 550 and the final quantity sold is 400, the PED can be calculated as:

PED = ((400 - 550) / ((550 + 400) / 2)) / ((180 - 160) / ((160 + 180) / 2)) = -0.4583

Since the absolute value of the PED is greater than 1, the demand is elastic.