When the price of hot dogs is $1.50 each, 500 hot dogs are sold every day. After the price falls to $1.35 each, 510 hot dogs are sold every day. At the original price, what is the price elasticity of demand for hot dogs?

The correct answer is - 0.2.

Explanation:

According to the scenario, the given data are as follows:

When rate = $1.50

Hot dogs sold at $1.50 = 500 units

And When rate = $1.35

Hot dogs sold at $1.35 = 510 units

So, we can calculate the price elasticity by using following formula:

Price elasticity = (%change in quantity) : (%change in price)

Where, %change in quantity = ((510 - 500) * 100) : 500

= 1,000 : 500

= 2

and %change in price = ((1.35 - 1.50) * 100) : 1.50

= (-10)

So, by putting the value:

Price elasticity = 2 : (-10)

= - 0.2

Hence, the price elasticity of demand for hot dogs is - 0.2.