Suppose the price of movies seen at a theatre rises form Rs. 120 per person to Rs. 200 per person. The theatre manger observes that the rise in price leads to a fall in attendance at a given movie from 300 to 200 persons what is then price elasticity of demand for movies:
  • a)
    0.5
  • b)
    0.8
  • c)
    1
  • d)
    1.2
Correct answer is option 'B'. Can you explain this answer?

CA Foundation Question

Dilpreet Singh
Jul 11, 2018
Arc elasticity may be expressed as: [(Q1 - Q)/(Q1 + Q)] x [(P1 + P)/(P1 - P)]

Therefore,
[(300 - 200)/(300 + 200)] x [(200 + 120)/(200 - 120)]
= (100/500) x (320/80)

So, Arc elasticity = 4/5 = 0.8

(differences were large hence arc elasticity is used.)

Satyendra Tomar
Jun 20, 2018
Your reply is wrong .... according to the formula ---(100/300)/(80/120) :- .33/.66 :- .5

Dipendra Singh
Sep 30, 2019
Correct answer is B ,formula used arc elasticity method

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