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The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam?
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The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand ...
Calculation of Price Elasticity of Demand
To calculate the coefficient of price elasticity of demand, we need to use the formula:
E = (ΔQ/ΔP) * (P/Q)
Where:
E: Coefficient of price elasticity of demand
ΔQ: Change in quantity demanded
ΔP: Change in price
P: Initial price
Q: Initial quantity demanded
Given Data
Initial price (P1) = Rs. 6
New price (P2) = Rs. 4
Initial quantity demanded (Q1) = 10 units
New quantity demanded (Q2) = 15 units
Calculating ΔQ and ΔP
ΔQ = Q2 - Q1 = 15 - 10 = 5 units
ΔP = P2 - P1 = 4 - 6 = -2
Calculating Coefficient of Price Elasticity (E)
E = (ΔQ/ΔP) * (P/Q)
E = (5/-2) * (6/10)
E = -2.5 * 0.6
E = -1.5
Interpreting the Coefficient of Price Elasticity
The coefficient of price elasticity is -1.5.
A negative coefficient indicates an inverse relationship between price and quantity demanded, meaning that as the price decreases, the quantity demanded increases. The magnitude of the coefficient helps us understand the responsiveness of demand to a change in price.
Interpretation:
The magnitude of -1.5 indicates that the demand for the commodity is elastic. This means that a 1% decrease in price leads to a 1.5% increase in quantity demanded. The demand is relatively sensitive to changes in price, and a small change in price has a relatively large impact on the quantity demanded.
Overall, the coefficient of price elasticity helps us understand the responsiveness of demand to price changes and allows businesses to make informed decisions regarding pricing strategies and revenue optimization.
To calculate the coefficient of price elasticity of demand, we need to use the formula:
E = (ΔQ/ΔP) * (P/Q)
Where:
E: Coefficient of price elasticity of demand
ΔQ: Change in quantity demanded
ΔP: Change in price
P: Initial price
Q: Initial quantity demanded
Given Data
Initial price (P1) = Rs. 6
New price (P2) = Rs. 4
Initial quantity demanded (Q1) = 10 units
New quantity demanded (Q2) = 15 units
Calculating ΔQ and ΔP
ΔQ = Q2 - Q1 = 15 - 10 = 5 units
ΔP = P2 - P1 = 4 - 6 = -2
Calculating Coefficient of Price Elasticity (E)
E = (ΔQ/ΔP) * (P/Q)
E = (5/-2) * (6/10)
E = -2.5 * 0.6
E = -1.5
Interpreting the Coefficient of Price Elasticity
The coefficient of price elasticity is -1.5.
A negative coefficient indicates an inverse relationship between price and quantity demanded, meaning that as the price decreases, the quantity demanded increases. The magnitude of the coefficient helps us understand the responsiveness of demand to a change in price.
Interpretation:
The magnitude of -1.5 indicates that the demand for the commodity is elastic. This means that a 1% decrease in price leads to a 1.5% increase in quantity demanded. The demand is relatively sensitive to changes in price, and a small change in price has a relatively large impact on the quantity demanded.
Overall, the coefficient of price elasticity helps us understand the responsiveness of demand to price changes and allows businesses to make informed decisions regarding pricing strategies and revenue optimization.
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The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam?
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The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam? 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 of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam?.
The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam? 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 of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for The price of a commodity decreases from Rs. 6 to Rs. 4 and his demand for goods increases from 10 units to 15 units. Find the coefficient of price elasticity. Can you explain this sum sir/Mam?.
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