when the supply of motor scooters fall by 10 the price of th

when the supply of motor scooters fall by 10% the price of the scooters goes up by 40%. what is the price elasticity of demand of scooters? What would happen if scooter-sellers raise the prices of scooters by 50% because of this reduction of the supply?

Solution

Price elasticity of demand (PED) measures the relationship between change in quantity demanded following a change in price

The formula for price elasticity of demand is:

Percentage change in quantity demanded divided by the percentage change in price

Keeping this theory in mind 10%/40% = .25

That is <1 so the elasticity of the demand of scooters is inelastic.

If price raises by 50% then (10/50)= .2, demand still remains inelastic.