One football season Domino's Pizza, a corporate sponsor of the Washington Redskins (a football team), offered to reduce the price of its $8 medium-size pizza by $1 for every touchdown scored by the Redskins during the previous week. Until that year, the Redskins weren't scoring many touchdowns. Much to the surprise of Domino's, in one week in 1999, the Redskins scored six touchdowns. (Maybe they like pizza.) Domino's pizzas were selling for $2 a pie! The quantity of pizzas demanded soared the following week from 1 pie an hour to 100 pies an hour. What was price elasticity of demand for Domino's pizza?

132 (elastic price demand)

Explanation:

Elasticity is a microeconomic concept that aims to measure the sensitivity of demand in the face of price changes. To calculate the price elasticity of demand, a formula is used that divides the observed percentage change in quantity (Q) by the percentage change in price (P). Elasticity = ▲ Q / ▲ P

If the result is greater than 1, in module, we say that demand is elastic (price sensitive). If the result is less than 1, in module, we say that demand is inelastic (not sensitive to price changes).

To find the percentage price change (▲ P) between the two periods simply decrease both and divide by the initial period. So you will find the relative percentage change. The same can be done to find the percentage change in quantity (▲ Q).

So:

▲ Q. = (Q2 - Q1) / Q1 = (100 - 1) / 1 = 99

▲ P = (P2 - P1) / P1 = (2 - 8) / 8 = |-0,75|

The elasticity wlill be: ▲ Q / ▲ P = - 099/0,75 = |-132|

The price elasticity of demand for pizza was 132, which is greater than 1. Therefore, demand was elastic, ie very price sensitive. This was proven when the drop in price greatly increased the demand for pizza.

Note: Due to variations, the elasticity value may have a negative sign. Therefore, we use module.