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Macroeconomics II –The market system

Question 2

PED

A business currently sells 50,000 units of product per month at a price of $15.
The sales manager has suggested dropping the price to sell more units. He
suggests that at a price point of $12 the number of units sold will rise to 65,000.

Calculate the PED using the non-average arc method.

Percentage change in price = ($12 – $15)/$15 × 100 = –20%

Percentage change in demand = (65,000 – 50,000)/50,000 × 100 = +30%

PED = +30/–20 = –1.5

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