The calculated elasticity was approximately -1.38.
Therefore, option D is correct
the concept of price elasticity of demand and how it applies to Maria's purchase of ChocoDelight chocolates.
Price Elasticity of Demand:
Price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. It's a critical concept in economics that helps understand consumer behavior and the market dynamics for a product.
Calculation:
In Maria's case, we calculated the price elasticity of demand using the midpoint method, which is a common approach in economics for calculating elasticity because it gives the same value regardless of the direction of the change. The formula for the midpoint method is:
Price Elasticity of Demand = Change in Quantity Demanded / Change in Price
The percentage changes are calculated using the midpoint (average) of the initial and final quantities and prices, respectively. This method is used to avoid the issue of having different elasticities depending on whether we move from the old to the new price or vice versa.
Maria's Case:
- Initial Scenario:
- Price of ChocoDelight: $3.50
- Quantity bought by Maria: 5 bars
- New Scenario:
- Price of ChocoDelight: $2.50
- Quantity bought by Maria: 8 bars
- Calculation:
- Midpoint of Price: $(3.50 + $2.50) / 2 = $3.00
- Midpoint of Quantity: (5 bars + 8 bars) / 2 = 6.5 bars
- Percentage Change in Quantity: ((8 - 5) / 6.5) * 100
- Percentage Change in Price: (($2.50 - $3.50) / $3.00) * 100
- Elasticity: The calculated elasticity was approximately -1.38.
Interpretation:
- Elastic Demand: Since the absolute value of PED is greater than 1, the demand for ChocoDelight is elastic in Maria's case. This implies that the quantity Maria demands is quite sensitive to price changes. A 1% decrease in price leads to more than a 1% increase in the quantity she buys.
- Negative Sign: The negative sign is typical in demand elasticity, indicating that the relationship between price and quantity demanded is inversely proportional (as price decreases, quantity demanded increases, and vice versa).
In conclusion, the demand for ChocoDelight is highly responsive to price changes for Maria. When the price dropped, she significantly increased her purchase quantity, reflecting her sensitivity to price changes in her favorite chocolate brand.