Question

Suppose that Dunkin Donuts reduces the price of its regular coffee from $2 to $1 per cup, and as a result, the quantity sold per day increased from 10 to 40. Over this price range, the price elasticity of demand for Dunkin Donuts’ regular coffee is:

Answer 1

Answer:

PED = -6

Explanation:

The PED or price elasticity of demand for a product measures the responsiveness of a product's demand to the changes in the price of the product. The PED is calculated as follows,

PED = % change in Quantity demanded / % change in price

PED = [(40 - 10) / 10]  /  [(1 - 2) / 2]

PED = -6

A PED of -6 represents that quantity demanded is highly price elastic and a negative sign means that it is a normal good.