You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to the price?

A) reduce price by 12.5 percent
B) increase price by 12.5 percent
C) reduce price by 8 percent
D) increase price by 8 percent

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Shelby Visser · Accepted Answer

Final Answer : A, Explanation :  The price elasticity of demand formula is % Change in Quantity Demanded / % Change in Price. Given the elasticity is 0.8 and you want to increase quantity by 10%, you solve for % Change in Price = 10% / 0.8 = 12.5%. Since the elasticity is less than 1, demand is inelastic, and to increase quantity sold, you reduce the price.

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