You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to the price?
A)reduce price by 12.5 percent
B)increase price by 12.5 percent
C)reduce price by 8 percent
D)increase price by 8 percent

Question

Quizplus · Accepted Answer

The price elasticity of demand formula is % Change in Quantity Demanded / % Change in Price. Given the elasticity is 0.8 and you want to increase quantity by 10%, you solve for % Change in Price = 10% / 0.8 = 12.5%. Since the elasticity is less than 1, demand is inelastic, and to increase quantity sold, you reduce the price.

You Are the Only Seller of Eggs in Town, and the Price-Elasticity