The ECON3305 company was considering a price increase and wished to determine the price elasticity of demand (arc elasticity of demand). An economist and a market researcher, Sandy and you, were hired to study demand. In a controlled experiment, it was determined that at 8 cents, 100 pencils were sold while at 10 cents, 60 pencils were sold, yielding an elasticity of 2.25. However, Sandy and you were industrial spies, employed by the EF Pencil Co. and sent to ECON3305 to cause as much trouble as possible. So Sandy and you decided to change the base for their elasticity figure, measuring price in terms of dollars instead of pennies (ie., $0.08 for 8 cents and $0.10 for 10 cents). How will this sabotage affect the results? Please show all your work and the formulas.

The elasticity of demand when the price is measured in cents is calculated as follows: =x M' Q goo-ski 310 mo =-l.6 The elasticity of demand when the price is measured in dollars is calculated as follows: 5'2:ng AP Q 2 10050 XE 0.080.10 100 21.6 Both E1 and E2 is equal to 1.6. This shows that changing the units of price do not affect the elasticity of demand. Therefore, the change in measurement of price have no effect on the results