EdmureTully said:Homework Statement
Given a price elasticity of 1.6 and an initial sales number of 10000 what would be the sales number if price went from 4.99 to 10.00?
Homework Equations
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
The Attempt at a Solution
1.6*200 *100 -10000
it gives me 220000, but that can't be right
EdmureTully said:I don't have that formula. It's not even a homework problem. I just want to know how to determine the new quantity.
Price elasticity of demand is a measure of how sensitive the quantity of a good or service demanded is to changes in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Price elasticity of demand is calculated by taking the percentage change in quantity demanded and dividing it by the percentage change in price. The formula is: (Q2 - Q1) / ((Q2 + Q1) / 2) / (P2 - P1) / ((P2 + P1) / 2), where Q1 and Q2 represent the initial and final quantities demanded, and P1 and P2 represent the initial and final prices.
A high price elasticity of demand indicates that the quantity demanded is very sensitive to changes in price. This means that small changes in price can result in large changes in the quantity demanded. In other words, consumers are very responsive to changes in price.
There are several factors that can affect the price elasticity of demand, including the availability of substitutes, the necessity of the good or service, the proportion of income spent on the good or service, and the time period under consideration. Generally, goods and services that have close substitutes, are considered necessities, and represent a large portion of consumer income tend to have a higher price elasticity of demand.
Price elasticity of demand is important because it helps businesses and policymakers understand how changes in prices will affect consumer behavior and ultimately, sales. It can also be used to determine the optimal pricing strategy for a product or service. Additionally, price elasticity of demand can provide insights into consumer preferences and market trends, and can help businesses make more informed decisions about production, pricing, and marketing strategies.