Question

It has been estimated that the price elasticity of demand for attending baseball games is 0.23. Other things held constant, a 10 percent increase in attendance can be explained by a:

A. 43.48 percent fall in the price of a ticket.
B. 43.48 percent rise in the price of a ticket.
C. 23 percent fall in the price of a ticket.
D. 23 percent rise in the price of a ticket.

Answer 1

Correct option: (A) 43.48% fall in the price of a ticket.

Explanation:

The price elasticity of demand is defined as the percent change in quantity demanded to the percent change in the price.

`Price\ elasticity\ of\ demand=(\%\ change\ in\ quantity\ demanded)/(\%\ change\ in\ price)`

Given:

Price elasticity of demand = 0.23

% change in quantity demanded = 10

Compute the % change in price as follows:

`Price\ elasticity\ of\ demand=(\%\ change\ in\ quantity\ demanded)/(\%\ change\ in\ price)\\0.23=(10)/(\%\ change\ in\ price)\\{\%\ change\ in\ price}=(10)/(0.23)\\=43.4783\\\approx43.48`

Thus, a 10 percent increase in attendance can be explained by a 43.48% fall in the price of a ticket.