Question

Enchante Inc. is a high-end perfume manufacturer. It slashed the price of its brand of perfume "Entice" by 5 percent, which resulted in a 20 percent increase in sales. Estimate the price elasticity for Entice.

Answer 1

Around -4 percentage points

Step-by-step explanation:

The price elasticity is the measurement of change in quantity supplied or demanded with respect to the change in price.

The formula we can think for this problem would be:

Price Elasticity = Percentage Change in Quantity Demanded / Percentage Change in price

We let the initial price be 100 and initial quantity demanded of sales be 100

Given,

Percentage Change in Quantity is 20% increase

also

Percentage Change in Price is 5% decrease

We can say:

Price Elasticity = 20% / -5% = -4