Leans Deluxe garment bag sales increased from 4800 units to

Leans Deluxe garment bag sales increased from 4800 units to 6,000 units in response to price drop from $30 per unit to $20 per unit. Calculate arc price electricity of this product using mid-point formula.

Solution

The price elasticity of demand is given by the percentage change in demand divided by the percentage change in price. The percentage change in demand is given by 25%. The percentage change in price is given by -33.33%. The elasticity of demand is thus given by -0.75. The elasticity of demand is thus price inelastic.