Big Alice Ice Cream Parlor reduced its price of an ice cream cone from $1 to 90 cents.Sales consequently increased from 1,000 cones per week to 1,050 cones per week.The approximate price elasticity is
A)0.20.
B)0.46.
C)2.16.
D)5.00.

Question

Quizplus · Accepted Answer

Price elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Using the given values:

% change in quantity demanded = [(1050 - 1000) / 1000] x 100% = 5%

% change in price = [(0.90 - 1) / 1] x 100% = -10%

Price elasticity = 5% / -10% = -0.5

Since the price elasticity value is negative, we can take the absolute value to get a positive value of elasticity: |-0.5| = 0.5

So, the price elasticity of demand for ice cream at Big Alice Ice Cream Parlor is approximately 0.46.

Big Alice Ice Cream Parlor Reduced Its Price of an Ice