Question

harry, the local sandwiches r us manager, wanted to increase sales. he decided to raise the price of their most popular sandwich, the tuna on rye bread, by 75 cents to $4.25. a month later, when he compared the most recent month sales to the previous month, he saw that dollar sales for tuna on rye went up by 10% and he was satisfied with the results. calculate the price elasticity of demand for the store’s tuna on rye.

Answer 1

The Store's price elasticity of demand for the tuna on rye is 0.47.

Data and Calculations:

Change in price = 75 cents

New price = $4.25

Old price = $3.50 ($4.25 - $0.75)

Percentage change in demand = 10%

Percentage change in price = 21.43% ($0.75/$3.50 x 100)

Price elasticity of demand = % change in quantity demanded/% change in price

= 10%/21.43%

= 0.467

= 0.47

Economists can conclude that the demand for the tuna on rye is relatively inelastic.

Thus, the price elasticity of demand is less than 1 (0.47).  The quantity demanded does not change significantly following the price increase.

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