Charming Inc.is a high-end perfume manufacturer.It slashed the price of its least popular fragrance "Energy" by 5 percent during the last fiscal year.This resulted in a 20 percent increase in the sales of Energy in that time period compared to the year before.Estimate the price elasticity for Energy.
A) 4
B) 5
C) 20
D) 100

Question

Quizplus · Accepted Answer

Price elasticity is a measure of consumers' price sensitivity, which is estimated by dividing relative changes in the quantity sold by the relative changes in price: e = Percent change in quantity demanded/Percent change in price. As such, price elasticity for Fast would be 20/5 = 4.