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Suppose the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)
- a)0.5
- b)0.8
- c)1.00
- d)None of these
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
Suppose the price of movies seen at a theatre rises form Rs. 120 per p...
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.)
Most Upvoted Answer
Suppose the price of movies seen at a theatre rises form Rs. 120 per p...
Solution:
To calculate the price elasticity of demand, we need to use the arc elasticity formula:
Arc Elasticity = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))
Where:
Q1 = Initial quantity demanded
Q2 = Final quantity demanded
P1 = Initial price
P2 = Final price
Given:
Q1 = 300 persons
Q2 = 200 persons
P1 = Rs. 120 per person
P2 = Rs. 200 per person
Calculations:
Using the formula, we can calculate the arc elasticity as follows:
Arc Elasticity = ((200 - 300) / ((200 + 300) / 2)) / ((200 - 120) / ((200 + 120) / 2))
= ((-100) / (500 / 2)) / (80 / (320 / 2))
= ((-100) / 250) / (80 / 160)
= (-0.4) / (0.5)
= -0.8
The arc elasticity of demand for the movie is -0.8.
Interpretation:
Since the price elasticity of demand is negative, we can conclude that the movie is price elastic. This means that a 1% increase in price will result in more than a 1% decrease in quantity demanded.
In this case, the price elasticity of demand is -0.8. This indicates that a 1% increase in price will lead to an 0.8% decrease in quantity demanded. Therefore, the demand for the movie is relatively responsive to changes in price, as a higher price has resulted in a significant decrease in attendance.
Answer:
The price elasticity of demand for the movie is -0.8.
To calculate the price elasticity of demand, we need to use the arc elasticity formula:
Arc Elasticity = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))
Where:
Q1 = Initial quantity demanded
Q2 = Final quantity demanded
P1 = Initial price
P2 = Final price
Given:
Q1 = 300 persons
Q2 = 200 persons
P1 = Rs. 120 per person
P2 = Rs. 200 per person
Calculations:
Using the formula, we can calculate the arc elasticity as follows:
Arc Elasticity = ((200 - 300) / ((200 + 300) / 2)) / ((200 - 120) / ((200 + 120) / 2))
= ((-100) / (500 / 2)) / (80 / (320 / 2))
= ((-100) / 250) / (80 / 160)
= (-0.4) / (0.5)
= -0.8
The arc elasticity of demand for the movie is -0.8.
Interpretation:
Since the price elasticity of demand is negative, we can conclude that the movie is price elastic. This means that a 1% increase in price will result in more than a 1% decrease in quantity demanded.
In this case, the price elasticity of demand is -0.8. This indicates that a 1% increase in price will lead to an 0.8% decrease in quantity demanded. Therefore, the demand for the movie is relatively responsive to changes in price, as a higher price has resulted in a significant decrease in attendance.
Answer:
The price elasticity of demand for the movie is -0.8.
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Community Answer
Suppose the price of movies seen at a theatre rises form Rs. 120 per p...
Ed = -(P/Q ×∆Q/∆p). = p1=120, p2=200,. Q 1=300,Q2=200. Ed=-(120/300×100/80). Ed=- (3/3×1/2) = -(3/6) =-0.5 answer is A
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Suppose the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. Can you explain this answer?
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Suppose the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. 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 the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. 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 the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. Can you explain this answer?.
Suppose the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. 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 the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. 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 the price of movies seen at a theatre rises form Rs. 120 per person to Rs.200 per person. The theatre manager observed that the rise in prices has lead to a fall in attendance at a given movie from 300 persons to 200 persons. What is the price elasticity of demand for the movie? (arc elasticity)a)0.5b)0.8c)1.00d)None of theseCorrect answer is option 'B'. Can you explain this answer?.
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