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A groceries store offers a discounted price for coke at $1
A groceries store offers a discounted price for coke at $1.50 per pack and the sales went up to 250 pack for a month. Normally the store sells the coke at regular price of $2.00 per pack and the average sales is 150 packs per month. What is the price elasticity of demand for coke? (4 points) Show your calculation. Is demand of coke elastic, inelastic or unit elastic? (2 points)
Expert Solution
Computation of Price Elasticity of Demand:
Price Elasticity of Demand = % Change in Quantity / % Change in Price
Here,
% Change in Quantity = (Q2 - Q1)/((Q2 + Q1)/2) = (250 - 150)/((250+ 150)/2) = 100/200
% Change in Price = (P2 - P1)/((P2 + P1)/2) = (1.50 - 2)/((1.50+ 2)/2) = -0.50/1.75
Price Elasticity of Demand = 100/200/-0.50/1.75 = -0.57 Inelastic
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