Answer:
Jack will likely sell 30% more pumpkins
Step-by-step explanation:
Extracting key information from the question:-
*** Jack has been selling pumpkins for $10.
*** He then lowers the price by 20%.
*** The price elasticity for pumpkins is 1.5
*** We are now required to calculate the quantity of more pumpkins that Jack will likely sell due to this discount.
Since Jack has been selling pumpkins for $10 and later lowered the price by 20% due to fear of having so much unsold pumpkins, we can calculate the new price that Jack lowered the price to.
Since Jack lowered the price by 20%, it means that the new price or cost of the pumpkin is only (100% - 20%) 80% of its usual price.
That is: 80/100 × 10
= $8
So, Jack lowered the price of a pumpkin to $8 from $10 to boost sales of his pumpkins.
We can calculate the quantity of more pumpkins that he is likely going to sell as a result of this discount by using the formula for calculating the price elasticity of demand. Since we already have the knowledge of the price elasticity for pumpkins, we simply have to substitute appropriately and make "% change in quantity demanded" the subject of the formula and solve.
Price elasticity of demand = %∆Q/%∆P
Where %∆Q = percentage change in quantity demanded and %∆P = percentage change in price.
%∆Q = price elasticity × %∆P
%∆Q = 1.5 × 20
%∆Q = 0.3
= 30%
Therefore, Jack will sell 30% more pumpkins at a discount of 20%