Question

Suppose 1,000 items of a product are sold at a price of $10 each. When the price of the product is reduced by $2, the number sold increases to 1,100. What is the price elasticity of demand for this product? Steps on how to solve with calculator!

Answer key shows the answer as -0.5.

Answer 1

Elasticity of demand = (% change in quantity demanded/ % change in price)

% change in quantity demanded = [(1100-1000)/1000]100 = 10%

% Change in price = [(8-10)/10] 100 = -20%

Elasticity of demand = 10/-20= -0.5