Economics Multiple Choice Question – 11 November 2017

The price elasticity for a product is -2.5. The firm sells 2,000 units. What would you expect the new sales to be following a 10% price increase?

Select ONE answer:

1. 1,500
2. 2,000
3. 2,500
4. 2,200
5. 1,800

Show your workings to arrive at your answer, and explain and justify your reasons?
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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 1 – Normal formula is PED = % change QD / % change P. We know PED = -2.5 & % change in P is 10%. Substituting in this formula we know -2.5 = -x% / 10% where needs to be a higher % therefore this must be -25% / 10% to equal -2.5. 25% of 2,000 units sold is 500 units. 500 less units sold from a 10% increase in price means 2,000 – 500 i.e. new quantity sold will be 1,500 units.

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