Calculation of Coefficient of Price Elasticity

The coefficient of price elasticity of demand (PED) is calculated as the percentage change in the quantity demanded of a commodity divided by the percentage change in its price. In this case, the price of the commodity decreases from 10 to 8, which is a decrease of 20%. The quantity demanded of the commodity increases from 25 to 30 units, which is an increase of 20%. Therefore, the coefficient of price elasticity can be calculated as:

PED = (% change in quantity demanded) / (% change in price)
PED = (20 / 25) / (-20 / 10)
PED = (-0.8)

Interpretation of Coefficient of Price Elasticity

The coefficient of price elasticity in this case is negative, indicating that the commodity is price elastic. This means that a decrease in price leads to a relatively larger increase in the quantity demanded. The absolute value of the coefficient of price elasticity is 0.8, which indicates that the commodity is moderately price elastic.

Explanation of Point Elasticity

Point elasticity is a method of measuring price elasticity of demand at a specific point on the demand curve. It is calculated as the percentage change in quantity demanded divided by the percentage change in price at a specific point on the demand curve.

Application of Point Elasticity

To calculate the point elasticity at a specific point on the demand curve, we need to know the slope of the demand curve at that point. The slope of the demand curve is given by the formula:

slope = (change in quantity demanded) / (change in price)

By using this formula, we can calculate the slope of the demand curve at the point where the price is 8 and the quantity demanded is 30. Once we have the slope of the demand curve, we can use the point elasticity formula to calculate the price elasticity of demand at that point.

Conclusion

In conclusion, the coefficient of price elasticity of demand for a commodity that decreases in price from 10 to 8 and experiences an increase in quantity demanded from 25 to 30 is -0.8, indicating that the commodity is moderately price elastic. The point elasticity of demand can be calculated at a specific point on the demand curve by using the slope of the demand curve at that point.