If the local ice cream shop raise the price of a ice cream Cup from Rs 10 per cup of Rupees 15 per cup and quantity demanded Falls from 50 cups per day to 30 covers per day the price elasticity of demand for ice cream Cup?

Question

Answer

Price Elasticity of Demand for Ice Cream Cup

Background Information

The local ice cream shop has raised the price of a cup of ice cream from Rs 10 to Rs 15. As a result, the quantity demanded has fallen from 50 cups per day to 30 cups per day.

Calculating Price Elasticity of Demand

To calculate the price elasticity of demand, we use the following formula:

Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)

In this case, we can calculate the percentage change in quantity demanded as follows:

% Change in Quantity Demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) x 100

% Change in Quantity Demanded = ((30 - 50) / 50) x 100

% Change in Quantity Demanded = -40%

We can calculate the percentage change in price as follows:

% Change in Price = ((New Price - Old Price) / Old Price) x 100

% Change in Price = ((15 - 10) / 10) x 100

% Change in Price = 50%

Using these values, we can calculate the price elasticity of demand as follows:

Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price)

Price Elasticity of Demand = (-40%) / (50%)

Price Elasticity of Demand = -0.8

Interpreting Price Elasticity of Demand

A price elasticity of demand of -0.8 means that the demand for ice cream cups is relatively inelastic. This means that the change in price has a relatively small effect on the quantity demanded.

Conclusion

In conclusion, the price elasticity of demand for ice cream cups is -0.8, which indicates that the demand for ice cream cups is relatively inelastic. This means that the change in price from Rs 10 to Rs 15 has had a relatively small effect on the quantity demanded.

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