Suppose a local food truck participates popular weekly food

Suppose a local food truck participates popular weekly food truck rallies at the park.

A. The food tuck was charging $5.00/taco and selling 1000 tacos per week. When it raised the price to $6.00/taco, sales fell to 500 tacos/week. Compute the price elasticity of demand for this firm’s tacos. Show your work.

B. In this example, is demand considered to be price elastic or price inelastic? Explain in ONE and only one concise, complete sentence.

C. Using the context of the problem AND factors that determine price elasticity of demand, explain why your answer to (B) is expected or unexpected. You must address both the context and factors for full credit. Responses should be 2-5 sentences

Solution

Req a: Change in price: 6-5 =1.00 % change in price: 1 /5 = 20% Change in demand: -500 % change in demand: -500 /1000 =-50% Price elasticity of demand: % change in demand/ % change in price (-50% / 20% )= -2.5 Req b: The Product is having elastic demand. Req c: The reasons for elasticity of demand of above goods is: * the substitute for the goods are readily available. *The goods are not considered as necessity of life. * The demand of good can be postponed.