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Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)
- a)0.8
- b)1.0
- c)1.25
- d)1.50
Correct answer is option 'C'. Can you explain this answer?
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Suppose a department store has a sale on its silverware. If the price ...
Calculation of Price Elasticity of Demand for Silverware:
The formula for arc elasticity is:
Arc elasticity = (ΔQ/[(Q1+Q2)/2]) / (ΔP/[(P1+P2)/2])
Where:
ΔQ = change in quantity demanded = 5,000 – 3,000 = 2,000 place-settings
Q1 = initial quantity demanded = 3,000 place-settings
Q2 = final quantity demanded = 5,000 place-settings
ΔP = change in price = Rs. 200 – Rs. 300 = Rs. -100
P1 = initial price = Rs. 300
P2 = final price = Rs. 200
By substituting the values in the formula, we get:
Arc elasticity = (2000/[(3000+5000)/2]) / (-100/[(300+200)/2])
Arc elasticity = (2000/4000) / (-100/250)
Arc elasticity = 0.5 / -0.4
Arc elasticity = -1.25
Interpretation:
The price elasticity of demand for silverware is -1.25. This means that a 1% decrease in the price of silverware will result in a 1.25% increase in the quantity demanded of silverware. Since the elasticity is greater than 1, the demand for silverware is elastic, meaning that consumers are responsive to changes in the price of silverware. The department store can use this information to set its prices to increase its sales revenue.
The formula for arc elasticity is:
Arc elasticity = (ΔQ/[(Q1+Q2)/2]) / (ΔP/[(P1+P2)/2])
Where:
ΔQ = change in quantity demanded = 5,000 – 3,000 = 2,000 place-settings
Q1 = initial quantity demanded = 3,000 place-settings
Q2 = final quantity demanded = 5,000 place-settings
ΔP = change in price = Rs. 200 – Rs. 300 = Rs. -100
P1 = initial price = Rs. 300
P2 = final price = Rs. 200
By substituting the values in the formula, we get:
Arc elasticity = (2000/[(3000+5000)/2]) / (-100/[(300+200)/2])
Arc elasticity = (2000/4000) / (-100/250)
Arc elasticity = 0.5 / -0.4
Arc elasticity = -1.25
Interpretation:
The price elasticity of demand for silverware is -1.25. This means that a 1% decrease in the price of silverware will result in a 1.25% increase in the quantity demanded of silverware. Since the elasticity is greater than 1, the demand for silverware is elastic, meaning that consumers are responsive to changes in the price of silverware. The department store can use this information to set its prices to increase its sales revenue.
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Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer?
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Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. 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 Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. 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 Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer?.
Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. 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 Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. 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 Suppose a department store has a sale on its silverware. If the price of a place-setting is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 place-settings to 5,000 place-settings, what is the price elasticity of demand for silverware? (use Arc elasticity)a)0.8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer?.
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