Question

Mr Caponi is a butcher who recently raised the price of steak at his market from 1.5 to £2 per kilo. Correspondingly, his sales dropped from 200 kilos per day to 100.

Is the demand for steak at Caponi's market elastic or inelastic?

Answer 1

Answer:

Old price = 1.5

New price = 2

% change in price = (new price - old price) / old price

= (2 - 1.5) / 1.5

= 0.5 / 1.5

= 33.33%

Old quantity = 200

New quantity = 100

% change in quantity = (new quantity - old quantity)/ old quantity

= (200 - 100) / 200

= 100/200

= 50%

Price elasticity = % change in quantity / % change in price

= 50 / 33.33

= 1.50

As price elasticity of demand as calculated above is greater than 1,  demand for steak at Caponi's market is elastic.