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What will be the price elasticity it original price is Rs. 5, original quantity is 8 units and changed price is Rs. 6, changed quantity is 4 units:
- a)2.5
- b)2.0
- c)1.5
- d)1.0
Correct answer is option 'A'. Can you explain this answer?
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What will be the price elasticity it original price is Rs. 5, original...
Calculation of Price Elasticity:
Price elasticity is calculated with the formula:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
Percentage Change in Quantity Demanded:
Quantity demanded has decreased from 8 units to 4 units.
Percentage Change in Quantity Demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) x 100
= ((4-8)/8) x 100
= -50%
Percentage Change in Price:
Price has increased from Rs. 5 to Rs. 6.
Percentage Change in Price = ((New Price - Old Price) / Old Price) x 100
= ((6-5)/5) x 100
= 20%
Price Elasticity of Demand:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
= (-50%) / (20%)
= -2.5
Interpretation of Price Elasticity:
As the price elasticity of demand is greater than 1, the demand for the product is elastic. It means that a small change in price will result in a proportionately larger change in quantity demanded. In this case, a 20% increase in price has led to a 50% decrease in quantity demanded. Therefore, the product is price sensitive and consumers are responsive to changes in price.
Answer: a) 2.5
Price elasticity is calculated with the formula:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
Percentage Change in Quantity Demanded:
Quantity demanded has decreased from 8 units to 4 units.
Percentage Change in Quantity Demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) x 100
= ((4-8)/8) x 100
= -50%
Percentage Change in Price:
Price has increased from Rs. 5 to Rs. 6.
Percentage Change in Price = ((New Price - Old Price) / Old Price) x 100
= ((6-5)/5) x 100
= 20%
Price Elasticity of Demand:
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price)
= (-50%) / (20%)
= -2.5
Interpretation of Price Elasticity:
As the price elasticity of demand is greater than 1, the demand for the product is elastic. It means that a small change in price will result in a proportionately larger change in quantity demanded. In this case, a 20% increase in price has led to a 50% decrease in quantity demanded. Therefore, the product is price sensitive and consumers are responsive to changes in price.
Answer: a) 2.5
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What will be the price elasticity it original price is Rs. 5, original...
%change in price =20% %change in quantity =50%so, price elasticity = %change in quantity ÷%change in price 50÷20=2.5
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What will be the price elasticity it original price is Rs. 5, original quantity is 8 units and changed price is Rs. 6, changed quantity is 4 units:a)2.5b)2.0c)1.5d)1.0Correct answer is option 'A'. Can you explain this answer?
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