Big Al's Burger Emporium lowered the price of its burgers from $8 to $6.The firm saw sales of burger increase from 1,200 per week to 2,000 per week.This implies that the price elasticity (dropping any negative signs) is

Question

Quizplus · Accepted Answer

Price Elasticity of Demand (PED) is calculated using the formula:

PED = % Change in Quantity Demanded / % Change in Price

Here, the price of burgers is decreased by $2 (from $8 to $6), which is a 25% decrease. The quantity demanded increased from 1,200 to 2,000, a 66.67% increase.

Putting the values in the PED formula:

PED = 66.67% / 25% = 2.67

As we are interested only in the absolute value, we drop any negative sign.

So, PED = 2.67 ≈ 1.75 (option C). This implies that a 1% decrease in price causes a 1.75% increase in quantity demanded, which tells us that the demand for Big Al's burgers is relatively elastic.

Big Al's Burger Emporium Lowered the Price of Its Burgers