Question

The Sugar Plum Inn has a fixed dinner plate charge of $8.75 and 3,000 patrons were served in June. The F&B manager has just increased the price of the fixed dinner plate to $9.25 and 2,900 patrons are served in July. By showing your calculations, decide of the price elasticity of this demand (elastic or inelastic).

Answer 1

Price Elasticity of Demand : It is the degree of responsiveness of the quantity demanded of a good due to change in its Price.

Price elasticity of Demand=% change in quantity Demanded % change in Price % change in qty (quantity) 3000 - 2900 X loo 3000 + 2900 1-2900) 2 100 loo = 3.389 % 2950 % change in price 9.25) x 10 18.75 + 9.25) = (8.75 9:25) 2 0.5 - x 100 = -5.56% 9 3.389 % Price elasticity of Demand a -5.56% 0.609 %

Note*

Price Elasticity of demand is always negative because there is an inverse relationship between the price and the quantity demanded.