Karen initially charged $80 for an hour-long massage and averaged 20 clients per week. When she raised her price to $100, the number of massages decreased to 15 per week. What is the price elasticity of demand for her service?
What will be an ideal response?
Price elasticity of demand is the percentage change in quantity divided by the percentage change in price. % change in quantity = (20 ? 15) ÷ 20 = 25%. % change in price = ($80 ? $100) ÷ $80 = ?25%. Price elasticity of demand = 25% ÷ ?25% = ?1.0.
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