Question

Suppose that the sales of DVD players increased by 20% when their prices fell by 30%....

  1. Suppose that the sales of DVD players increased by 20% when their prices fell by 30%. Calculate the price elasticity of demand (PED) of DVD players.
  1. Is the demand for DVD players elastic? How do you know?
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Answer #1

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

Given the increase in demand = + 20%, Decrease in price = - 30%

Price elasticity of demand = 20 / 30 = 0.667

Price Elasticity of Demand Values
Elastic greater than 1
Unitary equal to 1
Inelastic Less than 1

Our price elasticity of demand value 0.667 which is less than 1, which means our demand is inelastic and inelastic demand means that % change in quantity demanded is less than price.

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