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When price falls from Rs. 6 to Rs. 4, the demand rises form 10 to 15 units. Calculate price elasticity of demand. (Point elasticity)
- a)1.5
- b)3.5
- c)0.5
- d)2
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
When price falls from Rs. 6 to Rs. 4, the demand rises form 10 to 15 u...
Calculation of price elasticity of demand:
Price elasticity of demand (Ep) = percentage change in quantity demanded / percentage change in price
Given:
Initial price (P1) = Rs. 6
Final price (P2) = Rs. 4
Initial quantity demanded (Q1) = 10 units
Final quantity demanded (Q2) = 15 units
Change in price (ΔP) = P2 - P1 = Rs. 4 - Rs. 6 = - Rs. 2
Change in quantity demanded (ΔQ) = Q2 - Q1 = 15 - 10 = 5 units
Percentage change in price = (ΔP / P1) x 100 = (-2 / 6) x 100 = -33.33%
Percentage change in quantity demanded = (ΔQ / Q1) x 100 = (5 / 10) x 100 = 50%
Substituting these values in the formula of price elasticity of demand:
Ep = (ΔQ / Q1) / (ΔP / P1)
= (50 / 100) / (-33.33 / 100)
= -1.5
The negative sign indicates that the demand is elastic, i.e., a small change in price leads to a relatively larger change in quantity demanded.
Therefore, the correct answer is option 'A' (1.5).
Price elasticity of demand (Ep) = percentage change in quantity demanded / percentage change in price
Given:
Initial price (P1) = Rs. 6
Final price (P2) = Rs. 4
Initial quantity demanded (Q1) = 10 units
Final quantity demanded (Q2) = 15 units
Change in price (ΔP) = P2 - P1 = Rs. 4 - Rs. 6 = - Rs. 2
Change in quantity demanded (ΔQ) = Q2 - Q1 = 15 - 10 = 5 units
Percentage change in price = (ΔP / P1) x 100 = (-2 / 6) x 100 = -33.33%
Percentage change in quantity demanded = (ΔQ / Q1) x 100 = (5 / 10) x 100 = 50%
Substituting these values in the formula of price elasticity of demand:
Ep = (ΔQ / Q1) / (ΔP / P1)
= (50 / 100) / (-33.33 / 100)
= -1.5
The negative sign indicates that the demand is elastic, i.e., a small change in price leads to a relatively larger change in quantity demanded.
Therefore, the correct answer is option 'A' (1.5).
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When price falls from Rs. 6 to Rs. 4, the demand rises form 10 to 15 u...
Calculation of Price Elasticity of Demand
Price elasticity of demand is the measure of the responsiveness of demand for a product to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price falls from Rs. 6 to Rs. 4, and the demand rises from 10 to 15 units.
Percentage Change in Quantity Demanded
ΔQ/Q = (Q₂ - Q₁)/((Q₂ + Q₁)/2) × 100
ΔQ/Q = (15 - 10)/((15 + 10)/2) × 100
ΔQ/Q = 5/12.5 × 100
ΔQ/Q = 40%
Percentage Change in Price
ΔP/P = (P₂ - P₁)/((P₂ + P₁)/2) × 100
ΔP/P = (4 - 6)/((4 + 6)/2) × 100
ΔP/P = -2/5 × 100
ΔP/P = -40%
Price Elasticity of Demand
Eₚ = ΔQ/Q ÷ ΔP/P
Eₚ = 40% ÷ -40%
Eₚ = -1
The value of price elasticity of demand is negative, which indicates that the demand for the product is elastic. When the price falls by 1%, the demand for the product rises by 1.5%. Therefore, the correct option is A, 1.5.
Price elasticity of demand is the measure of the responsiveness of demand for a product to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price falls from Rs. 6 to Rs. 4, and the demand rises from 10 to 15 units.
Percentage Change in Quantity Demanded
ΔQ/Q = (Q₂ - Q₁)/((Q₂ + Q₁)/2) × 100
ΔQ/Q = (15 - 10)/((15 + 10)/2) × 100
ΔQ/Q = 5/12.5 × 100
ΔQ/Q = 40%
Percentage Change in Price
ΔP/P = (P₂ - P₁)/((P₂ + P₁)/2) × 100
ΔP/P = (4 - 6)/((4 + 6)/2) × 100
ΔP/P = -2/5 × 100
ΔP/P = -40%
Price Elasticity of Demand
Eₚ = ΔQ/Q ÷ ΔP/P
Eₚ = 40% ÷ -40%
Eₚ = -1
The value of price elasticity of demand is negative, which indicates that the demand for the product is elastic. When the price falls by 1%, the demand for the product rises by 1.5%. Therefore, the correct option is A, 1.5.
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When price falls from Rs. 6 to Rs. 4, the demand rises form 10 to 15 units. Calculate price elasticity of demand. (Point elasticity)a)1.5b)3.5c)0.5d)2Correct answer is option 'A'. Can you explain this answer?
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