211k views
2 votes
When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After lowering the price to $1.35 each, 510 hot dogs are sold every day.

At the original price, what is the price elasticity of demand for a hot dog?

User Calum
by
8.8k points

1 Answer

4 votes

Answer: The price elasticity of demand for hot dog is -0.2

Explanation: Price elasticity of demand is the percentage change in quantity of a goods divided by the percentage change in the price of the goods

PED = %∆Q ÷ %∆P

STEP1: CALCULATE THE PERCENTAGE CHANGE IN QUANTITY

[(510 - 500) ÷ 500 ] × 100 = 2%

STEP2: CALCULATE THE PERCENTAGE CHANGE IN PRICE

[($1.35 - $1.50) ÷ $1.50] ×100 = -10%

STEP3: CALCULATE THE PRICE ELASTICITY OF DEMAND

2% ÷ (-10%) = -0.2

The price elasticity is -0.2 which means that the demand is inelastic. Demand is elastic when percentage change in quantity is greater than percentage change in price.

User Kartik Arora
by
8.6k points

No related questions found