Question

Sandy's Sandwich Sitdown priced its lunch treats at ​$2.00
​, they sold 250 per day When the price was ​$3.00 they sold 200 per day Based on this information and using the​ average-values formula, the absolute value of the price elasticity of demand for lunch treats is

A. 2.50
B. 0.56 correct answer
C.1.79
D.0.40

Answer 1

Based on the above​ calculation, demand for lunch treats

is considered to be
a. inelastic
b. unit-elastic
c. elastic

Answer 2

The formula for price elasticity of demand is given by:

E = (Q2 - Q1) / ((Q2 + Q1) / 2) / (P2 - P1) / ((P2 + P1) / 2)

where Q1 and Q2 are the quantities demanded at price P1 and P2 respectively.

Given that Q1 = 250, Q2 = 200, P1 = $2.00, and P2 = $3.00, we can calculate the price elasticity of demand:

E = (200 - 250) / ((200 + 250) / 2) / ($3.00 - $2.00) / (($3.00 + $2.00) / 2)
= (-50) / (425 / 2) / $1.00 / ($5.00 / 2)
= -50 / 212.5 / 1 / 2.5
= -50 / 106.25
= -0.47

Since price elasticity of demand is a positive value, we take the absolute value:

|E| = 0.47

Therefore, the absolute value of the price elasticity of demand for lunch treats is 0.47.

Answer 3

Since the absolute value of the price elasticity of demand is less than 1 (0.47), the demand for lunch treats is considered to be inelastic.