If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:
A) 3.5.
B) 0.5.
C)1.
D) 2.2.

Question

Quizplus · Accepted Answer

To calculate the demand elasticity, we use the formula:

% change in quantity demanded / % change in price

From the given information, we can calculate the % change in quantity demanded:

% change in quantity demanded = ((new quantity - old quantity) / (old quantity)) * 100%
= ((600 - 400) / 400) * 100%
= 50%

And the % change in price:

% change in price = ((old price - new price) / (old price)) * 100%
= ((6 - 5) / 6) * 100%
= 16.67%

So, the demand elasticity is:

% change in quantity demanded / % change in price
= 50% / 16.67%
= 3

Since the demand elasticity is greater than 1, we can say that the demand for Sam's pizzas is elastic in this price range. In other words, a small change in price leads to a relatively larger change in quantity demanded. The value of 2.2 is not one of the answer choices.

If Sam, the Pizza Man, Lowers the Price of His