Suppose a pizzeria, appropriately named, “MPA = Master’s of Pizza Administration” (which has unfortunately occasionally been confused with the “Master’s of Propane Administration”) sells 500 cheese pizzas when the price is $10/pizza, and 1,100 cheese pizzas when the price is $8/pizza

a. (3) Use these figures to calculate the price elasticity of demand for cheese pizzas.

To calculate the price elasticity of demand (PED), we can use the following formula:

\[
\text{Price Elasticity of Demand} = \frac{\%\ \text{change in quantity demanded}}{\%\ \text{change in price}}
\]

We first need to calculate the percentage changes in both quantity demanded and price.

### Step 1: Calculate percentage change in quantity demanded
The quantity demanded changes from 500 pizzas to 1,100 pizzas.

\[
\%\ \text{change in quantity demanded} = \frac{\text{new quantity} - \text{initial quantity}}{\text{initial quantity}} \times 100
\]

\[
\%\ \text{change in quantity demanded} = \frac{1,100 - 500}{500} \times 100 = \frac{600}{500} \times 100 = 120\%
\]

### Step 2: Calculate percentage change in price
The price changes from $10 to $8.

\[
\%\ \text{change in price} = \frac{\text{new price} - \text{initial price}}{\text{initial price}} \times 100
\]

\[
\%\ \text{change in price} = \frac{8 - 10}{10} \times 100 = \frac{-2}{10} \times 100 = -20\%
\]

### Step 3: Apply the elasticity formula
Now, we plug the percentage changes into the elasticity formula:

\[
\text{Price Elasticity of Demand} = \frac{120\%}{-20\%} = -6
\]

Thus, the price elasticity of demand for cheese pizzas is **-6**, indicating that demand is highly elastic. This means that for every 1% decrease in price, the quantity demanded increases by 6%.

Would you like any further details or explanations?

Here are five related questions to consider:
1. What does a high price elasticity of demand imply about consumer behavior?
2. How would a positive value for price elasticity be interpreted?
3. What factors might cause demand to be more or less elastic?
4. How would the elasticity change if the price was reduced to $7 instead of $8?
5. How does price elasticity affect a company's revenue?

**Tip:** If elasticity is greater than 1 (in absolute value), demand is considered elastic, meaning consumers are very responsive to price changes.

Suppose a pizzeria, appropriately named, 'MPA = Master’s of Pizza Administration' sells 500 cheese pizzas when the price is $10/pizza, and 1,100 cheese pizzas when the price is $8/pizza. Use these figures to calculate the price elasticity of demand for cheese pizzas.

Learn how to calculate the price elasticity of demand for cheese pizzas, using real-world figures from the fictional pizzeria, 'MPA = Master’s of Pizza Administration.' This problem includes a detailed step-by-step solution and covers key concepts like percentage change in quantity demanded and price. Perfect for students studying economics.

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