Question

If the price if suntan lotion increases from $6 to $8 per bottle and quantity demanded decreases from 900000 bottles to 845000 bottles, what is the price elasticity of demand for suntan lotion?

Answer 1

The price elasticity of suntan lotion is 0.185 approximately.

Explanation:

• In Microeconomics,price elasticity of demand is calculated as division of percentage change in quantity demanded of any product or service by the percentage change in its price.
• In this case,the price of the suntan lotion increases from $6 to $8.Hence,percentage change in price=$\frac{(8-6)}{6} =0.33$.
• The quantity demanded of suntan lotion decreases from 900000 to 845000 bottles.Hence,the percentage change in quantity demanded for suntan lotions=$\frac{(900000-845000)}{900000} =0.061$.
• Hence,price elasticity of demand in this case=$(\frac{0.061}{0.33} )=0.185$ approximately.Therefore,price elasticity of demand for suntan lotion is 0.185 or between 0 and 1.