Price Elasticity of Demand

The price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Formula: PED = %ΔQd / %ΔP

Given Information

Price before increase, P1 = Rs. 8
Price after increase, P2 = Rs. 9
% change in price, %ΔP = (P2-P1)/P1 x 100 = (9-8)/8 x 100 = 12.5%
% change in quantity demanded, %ΔQd = 10%

Calculation of PED

PED = %ΔQd / %ΔP
PED = 10% / 12.5%
PED = 0.8

Interpretation of PED

The price elasticity of demand for this commodity is 0.8, which means that the demand for the commodity is inelastic. This implies that the change in price will not have a significant impact on the quantity demanded.

- If PED > 1, demand is elastic, and a change in price will have a significant impact on quantity demanded.
- If PED = 1, demand is unit elastic, and a change in price will have a proportional impact on quantity demanded.
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Conclusion

In this case, the price elasticity of demand for the commodity is 0.8, indicating that the demand for the commodity is inelastic. Therefore, a change in price from Rs. 8 to Rs. 9 will not have a significant impact on the quantity demanded of the commodity.

ANSWER IS

0.8

A