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The price decreases from INR 2,000 to INR 1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?
- a)The price elasticity of demand is -2
- b)The good is inferior
- c)Income elasticity is + 0.5
- d)Income elasticity is + 2
Correct answer is option 'A'. Can you explain this answer?
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The price decreases from INR 2,000 to INR 1,800. Quantity demanded per...
The percentage change in demand is +20%; the percentage change in price is -10% so the price elasticity of demand is -2.
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The price decreases from INR 2,000 to INR 1,800. Quantity demanded per...
The correct answer is option 'A', which states that the price elasticity of demand is -2. Let's understand why this is the correct answer:
Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price decreases from INR 2,000 to INR 1,800, which is a decrease of 10% ([(2000-1800)/2000] * 100). The quantity demanded per year increases from 5000 to 6000 units, which is an increase of 20% ([(6000-5000)/5000] * 100).
Therefore, the price elasticity of demand is calculated as -2 (20%/(-10%)).
Now, let's discuss the other options and why they are incorrect:
b) The good is inferior: The information given does not provide any indication that the good is inferior. An inferior good is one for which the demand decreases as income increases. It is not possible to determine from the given information whether the good is inferior or not.
c) Income elasticity is 0.5: The income elasticity of demand measures the responsiveness of the quantity demanded to a change in income. Since there is no information given about the change in income, it is not possible to determine the income elasticity of demand.
d) Income elasticity is 2: Similar to option c, the given information does not provide any indication of the change in income. Therefore, it is not possible to determine the income elasticity of demand.
In conclusion, based on the given information, the correct answer is option 'A' - the price elasticity of demand is -2.
Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price decreases from INR 2,000 to INR 1,800, which is a decrease of 10% ([(2000-1800)/2000] * 100). The quantity demanded per year increases from 5000 to 6000 units, which is an increase of 20% ([(6000-5000)/5000] * 100).
Therefore, the price elasticity of demand is calculated as -2 (20%/(-10%)).
Now, let's discuss the other options and why they are incorrect:
b) The good is inferior: The information given does not provide any indication that the good is inferior. An inferior good is one for which the demand decreases as income increases. It is not possible to determine from the given information whether the good is inferior or not.
c) Income elasticity is 0.5: The income elasticity of demand measures the responsiveness of the quantity demanded to a change in income. Since there is no information given about the change in income, it is not possible to determine the income elasticity of demand.
d) Income elasticity is 2: Similar to option c, the given information does not provide any indication of the change in income. Therefore, it is not possible to determine the income elasticity of demand.
In conclusion, based on the given information, the correct answer is option 'A' - the price elasticity of demand is -2.
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The price decreases from INR 2,000 to INR 1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?a)The price elasticity of demand is -2b)The good is inferiorc)Income elasticity is + 0.5d)Income elasticity is + 2Correct answer is option 'A'. Can you explain this answer?
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The price decreases from INR 2,000 to INR 1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?a)The price elasticity of demand is -2b)The good is inferiorc)Income elasticity is + 0.5d)Income elasticity is + 2Correct answer is option 'A'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about The price decreases from INR 2,000 to INR 1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?a)The price elasticity of demand is -2b)The good is inferiorc)Income elasticity is + 0.5d)Income elasticity is + 2Correct answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The price decreases from INR 2,000 to INR 1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?a)The price elasticity of demand is -2b)The good is inferiorc)Income elasticity is + 0.5d)Income elasticity is + 2Correct answer is option 'A'. Can you explain this answer?.
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