Refer to the scenario below to answer the following questions. Alden Manufacturing produces small kitchen appliances blenders, hand mixers, and electric skillets under the brand name First Generation. Alden attempts to target newlyweds and first-time home buyers with this brand. Considering that most young households have limited financial resources, Alden has used break-even analysis and analysis of the demand curve to determine pricing. "In doing this," Milt Alden stated, "we have better control over keeping price right in line with customers." Alden manufactures a three-speed blender, its top seller, and a five-speed blender. The hand mixers are manufactured in two styles a small hand-held mixer with two rotating beaters and a similar style that comes with an optional stand and attached mixing bowl. Alden's temperature-controlled skillets are manufactured in one style with three color options. "Our product offerings are narrower," Milt Alden added, "but our line workers know each product like the back of their hands. This allows us to produce superior products while holding our prices low."
-If Alden raises the price on the handheld mixer by 2 percent and quantity demanded falls by 10 percent, what is the price elasticity of demand?
A) -5
B) -8
C) -12
D) 5
E) 12

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, a 10% decrease in quantity demanded results from a 2% increase in price, so the elasticity is -10% / 2% = -5.

Refer to the Scenario Below to Answer the Following Questions