What would a 10% increase in the price of movie tickets mean for the quantity demanded if the price elasticity of demand was 0.1,0.5,1.0 and 5.0?

justaguide | Certified Educator

The price elasticity of demand is a measure of the percentage change in the quantity of a product demanded by customers for a percentage change in the price of the product. Demand and price have an inverse relationship for most products. When the price of the product goes up there is a drop in the demand and the demand increases if the price of the product decreases.

A demand for a product is inelastic if the magnitude of the PED is less than one, while the demand is said to the elastic if PED is greater than one.

Price elasticity of demand of the ticket is percentage change in the demand of the demand divided by the percentage change in the demand of the price. The percentage change in the price of the ticket is an increase of 10%. For the given PED given the change in demand is:

1. 0.1: 0.1 = % change in demand /10%

=> % change in the demand is a decrease of 1%

2. 0.5: 0.5 = % change in demand /10%

=> % change in demand is a decrease of 5%

3. 1.0: 1.0 = % change in demand /10%

=> % change in demand is a decrease of 10%

4. 5.0: 5.0 = % change in demand /10%

=> % change in demand is a decrease of 50%