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Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from Rs. 300 to Rs.200 and the quantity demanded increases from 3,000 platesettings to 5,000 plate-settings, what is the price elasticity of demand for silverware? (Use arc Elasticity Method)
  • a)
    .8
  • b)
    1.0
  • c)
    1.25
  • d)
    1.50
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Suppose a department store has a sale on its silverware. If the price ...
To calculate the price elasticity of demand using the arc elasticity method, we need to use the following formula:

Elasticity = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))

Where:
Q1 = initial quantity demanded
Q2 = new quantity demanded
P1 = initial price
P2 = new price

Given:
Q1 = 3,000 plate-settings
Q2 = 5,000 plate-settings
P1 = Rs. 300
P2 = Rs. 200

Let's calculate the price elasticity of demand step by step:

Step 1: Calculate the change in quantity demanded (ΔQ):
ΔQ = Q2 - Q1
= 5,000 - 3,000
= 2,000

Step 2: Calculate the average quantity demanded [(Q2 + Q1) / 2]:
Average quantity demanded = (Q2 + Q1) / 2
= (5,000 + 3,000) / 2
= 8,000 / 2
= 4,000

Step 3: Calculate the percentage change in quantity demanded (ΔQ/Qavg):
Percentage change in quantity demanded = (ΔQ / Qavg) * 100
= (2,000 / 4,000) * 100
= 50%

Step 4: Calculate the change in price (ΔP):
ΔP = P2 - P1
= Rs. 200 - Rs. 300
= -Rs. 100

Step 5: Calculate the average price [(P2 + P1) / 2]:
Average price = (P2 + P1) / 2
= (Rs. 200 + Rs. 300) / 2
= Rs. 500 / 2
= Rs. 250

Step 6: Calculate the percentage change in price (ΔP/Pavg):
Percentage change in price = (ΔP / Pavg) * 100
= (-Rs. 100 / Rs. 250) * 100
= -40%

Step 7: Calculate the price elasticity of demand:
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
= (50%) / (-40%)
= -1.25

Since price elasticity of demand is usually expressed as a positive value, we take the absolute value of -1.25, which gives us 1.25.

Therefore, the price elasticity of demand for silverware in this case is 1.25.
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Community Answer
Suppose a department store has a sale on its silverware. If the price ...
Q1 -q2 / q1 + q2 × p1 + p2 / p1 - p2

3000 - 5000 / 3000 + 5000 ×300 + 200 / 300 - 200

2000/ 8000 × 500/ 100

0.25 × 5

1.25
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Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from Rs. 300 to Rs.200 and the quantity demanded increases from 3,000 platesettings to 5,000 plate-settings, what is the price elasticity of demand for silverware? (Use arc Elasticity Method)a).8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer?
Question Description
Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from Rs. 300 to Rs.200 and the quantity demanded increases from 3,000 platesettings to 5,000 plate-settings, what is the price elasticity of demand for silverware? (Use arc Elasticity Method)a).8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer? 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 Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from Rs. 300 to Rs.200 and the quantity demanded increases from 3,000 platesettings to 5,000 plate-settings, what is the price elasticity of demand for silverware? (Use arc Elasticity Method)a).8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from Rs. 300 to Rs.200 and the quantity demanded increases from 3,000 platesettings to 5,000 plate-settings, what is the price elasticity of demand for silverware? (Use arc Elasticity Method)a).8b)1.0c)1.25d)1.50Correct answer is option 'C'. Can you explain this answer?.
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