Question

Karen initially charged $100 for an hour-long massage and averaged 30 clients per week. When she raised her price to $150, the number of massages decreased to 15 per week. What is the price elasticity of demand for her service? Show complete calculation for points.

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Answer 1

HI

For calculating the price elasticity of demand we need to calculate percentage change in quantity and percentage change in price

here initial number of clients = 30

changed number of clients = 15

so percentage change in clients (quantity) = (15-30)/30 = -15/30

Same way percentage change in price = (150-100)/100= 50/100

so price elasticity of demand = percentage change in quantity/percentage change in price

=-(15/30)/(50/100)

=-1/2*2 = -1

since demand and price moves in opposite direction hence we take absolute number for price elasticity of demand.

Hence in this equation price elasticity of demand = 1

Thanks