CA Foundation Exam > CA Foundation Questions > The price of a commodity decreases from Rs. 6...
Start Learning for Free
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?
Most Upvoted Answer
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.
Attention CA Foundation Students!
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.
|
Explore Courses for CA Foundation exam
|
|
Similar CA Foundation Doubts
Top Courses for CA FoundationView all
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?
Question Description
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?.
Solutions 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? in English & in Hindi are available as part of our courses for CA Foundation.
Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.
Here you can find the meaning of 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? defined & explained in the simplest way possible. Besides giving the explanation of
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?, a detailed solution 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? has been provided alongside types of 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? theory, EduRev gives you an
ample number of questions to practice 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? tests, examples and also practice CA Foundation tests.
|
|
Explore Courses for CA Foundation exam
|
|
Suggested Free Tests
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup