Sandy's Sandwich Sitdown priced its lunch treats at $2.00, they sold 250 per day. When the price was $3.00, they sold 200 per day. Based on this information and using the average-values formula, the absolute value of the price elasticity of demand for lunch treats is:

-0.56

Explanation:

The computation of the price elasticity of demand using the average-values formula is shown below:

= (change in quantity demanded ÷ average of quantity demanded) ÷ (percentage change in price ÷ average of price)

where,

Change in quantity demanded is

= Q2 - Q1

= 200 - 250

= -50

And,  an average of quantity demanded is

= (200 + 250) ÷ 2

= 225

Change in price is

= P2 - P1

= $3 - $2

= 1

And, the average of price is

= ($3 + $2) ÷ 2

= $2.5

So, after solving this, the price of elasticity is -0.56

0.56 (approx)

Explanation:

Given:

PRICE (P1) = $2

QUANTITY (Q1) = 250

PRICE (P2) = $3

QUANTITY (Q2) = 200

Calculation:

Average value method

Price elasticity of Demand = [Q2-Q1]/[(Q2+Q1)/2] / [P2-P1]/[(P2+P1)/2]

= [200-250]/[(200+250)/2] / [3-2]/[(3+2)/2]

= (-50)/(450/2) / (-1)/(5/2)

= (-50)/225 / (-1)/(2.5)

= -0.22222 / -0.4

= 0.555555

= 0.56 (approx)