Question

Study Problem 4-10 (algo) Adam makes specialized garden figurines in a small shop on his property, and his monthly total sales revenue is $700 when he charges $20 for each figurine. One month, he tried lowering his price to $15, and his total sales revenue that month was $630. On the basis of these data, what is the price elasticity of demand for Adam's product? Round your answer to 2 decimal places. €= -0.84

Answer 1

Answer:€ = (ΔQ/Q) / (ΔP/P)

In this case, the change in quantity demanded is $70 (from $700 to $630), and the change in price is $5 (from $20 to $15).

Using the values:

€ = ($70/$700) / ($5/$20)

€ = (0.1) / (0.25)

€ = 0.4

Therefore, the price elasticity of demand for Adam's product is 0.4.

Explanation:To calculate the price elasticity of demand, we use the formula:

€ = (ΔQ/Q) / (ΔP/P)

In this case, the change in quantity demanded is $70 (from $700 to $630), and the change in price is $5 (from $20 to $15).

Plugging these values into the formula:

€ = ($70/$700) / ($5/$20)

€ = 0.1 / 0.25

€ = 0.4

Hence, the price elasticity of demand for Adam's product is 0.4.