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When the price of cylinder rises form Rs. 120 to Rs. 200, the demand falls from 300 to 200. Calculate price elasticity of demand.
- a)1
- b)0.5
- c)5
- d)None
Correct answer is 'B'. Can you explain this answer?
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When the price of cylinder rises form Rs. 120 to Rs. 200, the demand f...
Price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Given, initial price (P1) = Rs. 120, final price (P2) = Rs. 200, initial demand (Q1) = 300, and final demand (Q2) = 200.
Percentage change in price (ΔP) = (P2 - P1)/P1 x 100% = (200 - 120)/120 x 100% = 66.67%
Percentage change in quantity demanded (ΔQ) = (Q2 - Q1)/Q1 x 100% = (200 - 300)/300 x 100% = -33.33%
Price elasticity of demand (Ed) = ΔQ/ΔP x P1/Q1 = (-33.33%/66.67%) x 120/300 = -0.5
Therefore, the price elasticity of demand is 0.5 or 0.5 units. This means that the demand for cylinders is relatively inelastic as the percentage change in quantity demanded is less than the percentage change in price. In other words, a 1% increase in price leads to a 0.5% decrease in quantity demanded.
Given, initial price (P1) = Rs. 120, final price (P2) = Rs. 200, initial demand (Q1) = 300, and final demand (Q2) = 200.
Percentage change in price (ΔP) = (P2 - P1)/P1 x 100% = (200 - 120)/120 x 100% = 66.67%
Percentage change in quantity demanded (ΔQ) = (Q2 - Q1)/Q1 x 100% = (200 - 300)/300 x 100% = -33.33%
Price elasticity of demand (Ed) = ΔQ/ΔP x P1/Q1 = (-33.33%/66.67%) x 120/300 = -0.5
Therefore, the price elasticity of demand is 0.5 or 0.5 units. This means that the demand for cylinders is relatively inelastic as the percentage change in quantity demanded is less than the percentage change in price. In other words, a 1% increase in price leads to a 0.5% decrease in quantity demanded.
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When the price of cylinder rises form Rs. 120 to Rs. 200, the demand f...
Using the formula ∆q/∆p×p/q ∆q=300-200,q= 200 ∆p=200-120,p =120 100/80×120/300 =0.5
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When the price of cylinder rises form Rs. 120 to Rs. 200, the demand falls from 300 to 200. Calculate price elasticity of demand.a)1b)0.5c)5d)NoneCorrect answer is 'B'. Can you explain this answer?
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