Question

A discount store has a special 0/1 point offer on CDs. It reduces their price from
150 to 100. Suppose the store manager observes that the quantity demanded increases from 700 CDs to 1300 CDs. What is the price elasticity of demand for CDs? (Use Arc Elasticity Method)
a. 1.50
b. 1.0
c. 0.8
d. 1.25​

Answer 1

Explanation:

We know arc elasticity method as

=

Q+Q1

Q−Q1

∗

P−P1

P+P1

=

700+1300

700−1300

∗

150−100

150+100

=1.50.

So, Arc elasticity = 1.50

(differences were large hence arc elasticity is used.)