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What will be the price elasticity if original price is Rs=5, original quantity is 8 units and changed price is Rs=6 changed quantity is 4 units?
- a)2.5
- b)2.0
- c)1.5
- d)1.0
Correct answer is option 'A'. Can you explain this answer?
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What will be the price elasticity if original price is Rs=5, original ...
Price elasticity of demand is a measure of 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.
Given:
Original price (P1) = Rs 5
Original quantity (Q1) = 8 units
Changed price (P2) = Rs 6
Changed quantity (Q2) = 4 units
To calculate the price elasticity of demand, we use the following formula:
Elasticity = (% change in quantity demanded) / (% change in price)
1. Calculate the percentage change in quantity demanded:
% change in quantity demanded = ((Q2 - Q1) / Q1) * 100
% change in quantity demanded = ((4 - 8) / 8) * 100
% change in quantity demanded = (-4 / 8) * 100
% change in quantity demanded = -50%
2. Calculate the percentage change in price:
% change in price = ((P2 - P1) / P1) * 100
% change in price = ((6 - 5) / 5) * 100
% change in price = (1 / 5) * 100
% change in price = 20%
3. Calculate the price elasticity of demand:
Elasticity = (% change in quantity demanded) / (% change in price)
Elasticity = (-50% / 20%)
Elasticity = -2.5
The calculated price elasticity of demand is -2.5. However, price elasticity is usually presented as a positive value, so we take the absolute value of -2.5, which is 2.5.
Therefore, the price elasticity of demand in this case is 2.5.
Given:
Original price (P1) = Rs 5
Original quantity (Q1) = 8 units
Changed price (P2) = Rs 6
Changed quantity (Q2) = 4 units
To calculate the price elasticity of demand, we use the following formula:
Elasticity = (% change in quantity demanded) / (% change in price)
1. Calculate the percentage change in quantity demanded:
% change in quantity demanded = ((Q2 - Q1) / Q1) * 100
% change in quantity demanded = ((4 - 8) / 8) * 100
% change in quantity demanded = (-4 / 8) * 100
% change in quantity demanded = -50%
2. Calculate the percentage change in price:
% change in price = ((P2 - P1) / P1) * 100
% change in price = ((6 - 5) / 5) * 100
% change in price = (1 / 5) * 100
% change in price = 20%
3. Calculate the price elasticity of demand:
Elasticity = (% change in quantity demanded) / (% change in price)
Elasticity = (-50% / 20%)
Elasticity = -2.5
The calculated price elasticity of demand is -2.5. However, price elasticity is usually presented as a positive value, so we take the absolute value of -2.5, which is 2.5.
Therefore, the price elasticity of demand in this case is 2.5.
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What will be the price elasticity if original price is Rs=5, original quantity is 8 units and changed price is Rs=6 changed quantity is 4 units?a)2.5b)2.0c)1.5d)1.0Correct answer is option 'A'. Can you explain this answer?
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