A firm raises its retail price from $20 to $30 per unit. As a result, its sales in units drop from 220 to 180. Its price elasticity of demand is 0.25.

Question

Quizplus · Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). In this case, the % change in quantity demanded is [(180 - 220) / 220] * 100 = -18.18%, and the % change in price is [(30 - 20) / 20] * 100 = 50%. Therefore, PED = -18.18% / 50% = -0.3636, not 0.25.

A Firm Raises Its Retail Price from $20 to $30