If the price elasticity of demand for cellphone is 2.5 (dropping the minus sign), then a 50 percent reduction in the price of radios will lead to a. the sale of 200 additional radios. b. the sale of 125 percent more radios than before. c. the sale of 150 percent more radios than before. d. the sale of 25 percent more radios than before.

Question

Business

Hodge

9 January, 11:04

If the price elasticity of demand for cellphone is 2.5 (dropping the minus sign), then a 50 percent reduction in the price of radios will lead to a. the sale of 200 additional radios. b. the sale of 125 percent more radios than before. c. the sale of 150 percent more radios than before. d. the sale of 25 percent more radios than before.

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Deanna Hampton · Answer 1

Answer

b. the sale of 125 percent more radios than before.

Explanation:

Price elasticity of demand (PED) is the degree of responsiveness of demand to a change in price. Where a percentage change in price produces a more than a proportional change in quantity, we say the product is price elastic. On the other hand, where a change in price produces a less than a proportional change in quantity demand, then demand is price inelastic

PED is computed as follows:

PED = % change in quantity / % change in Price

2.5 = y/50

y = 2.5 * 50

y = 125

y = 125%

From the above, we can see than an increase in price by 50% will lead to an additional demand in cellphone of 125% more than before.

The correct answer is

b. the sale of 125 percent more radios than before.