Elasticity of Demand: Understanding the Impact of Price Changes on Ground Beef Sales
What is the price elasticity of demand for ground beef?
Mia wants to know the price elasticity of demand for ground beef in her store. She noticed that when she raised the price of ground beef from $3.75/pound to $4.5/pound, her ground beef sales went from 200 pounds to 170 pounds. So what is the price elasticity of demand for ground beef?
Price Elasticity of Demand Calculation
The price elasticity of demand for ground beef is -0.890. Since the result is negative, this indicates that ground beef is an elastic product, meaning that a change in price has a significant impact on the quantity demanded.
In economics, price elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in its price. A price elasticity of demand of -0.890 suggests that for every 1% increase in the price of ground beef, the quantity demanded will decrease by approximately 0.890%. This indicates that ground beef is a price-sensitive product, with consumers being highly responsive to price changes.
To calculate the price elasticity of demand, we used the formula:
Price elasticity of demand = (% Change in quantity demanded) / (% Change in price)
By determining the initial and final prices and quantities demanded, we were able to calculate the price elasticity of demand for ground beef. The steps involved in the calculation were as follows:
- Initial price of ground beef = $3.75/pound
- Initial quantity demanded = 200 pounds
- Final price of ground beef = $4.5/pound
- Final quantity demanded = 170 pounds
After applying the values to the formula, we arrived at a price elasticity of demand of -0.890. This result confirms that ground beef is an elastic product, highlighting the significance of price changes on the quantity demanded.
Understanding price elasticity of demand is essential for businesses to make informed pricing decisions and anticipate consumer behavior. By recognizing how changes in price impact demand, businesses can adapt their strategies to optimize sales and profitability.