CA Foundation Exam > CA Foundation Questions > When price falls from Rs. 6 to Rs. 4, the dem...
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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?
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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
Formula for calculating point elasticity of demand:
Elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
Or
Elasticity of demand = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]
Given:
Initial price (P1) = Rs. 6
Final price (P2) = Rs. 4
Initial quantity demanded (Q1) = 10
Final quantity demanded (Q2) = 15
Using the above formula:
Elasticity of demand = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]
= [(15 - 10) / 10] / [(4 - 6) / 6]
= (5 / 10) / (-2 / 6)
= (0.5) / (-0.3333)
= -1.5
Interpretation:
The price elasticity of demand is -1.5, which means that a 1% decrease in price results in a 1.5% increase in quantity demanded. The demand for the product is elastic, meaning that consumers are very responsive to changes in price.
Answer:
a) 1.5
Formula for calculating point elasticity of demand:
Elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
Or
Elasticity of demand = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]
Given:
Initial price (P1) = Rs. 6
Final price (P2) = Rs. 4
Initial quantity demanded (Q1) = 10
Final quantity demanded (Q2) = 15
Using the above formula:
Elasticity of demand = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]
= [(15 - 10) / 10] / [(4 - 6) / 6]
= (5 / 10) / (-2 / 6)
= (0.5) / (-0.3333)
= -1.5
Interpretation:
The price elasticity of demand is -1.5, which means that a 1% decrease in price results in a 1.5% increase in quantity demanded. The demand for the product is elastic, meaning that consumers are very responsive to changes in price.
Answer:
a) 1.5
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Community Answer
When price falls from Rs. 6 to Rs. 4, the demand rises form 10 to 15 u...
Price elasticity = %change in quantity demanded ÷ % change in price
=(15-10/10) ÷ (6-4/6)
=(5/10) ÷(2/6)
=(5/10) ×(6/2)
=(1/2) ×3
=1.5
=(15-10/10) ÷ (6-4/6)
=(5/10) ÷(2/6)
=(5/10) ×(6/2)
=(1/2) ×3
=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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