Question

27. Suppose a department store has a sale on its silverware. If the price of planter setting is reduced
from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 plate settings to 8.000
plate settings, what is the price elasticity of demand for silverware
a 0.8
b. 1
1.25
d. 1.5​

Answer 1

The price elasticity of demand for silverware is 5.

Step-by-step explanation:

We are given that a department store has a sale on its silverware. If the price of planter settings is reduced  from Rs 300 to Rs 200 and the quantity demanded increases from 3,000 plate settings to 8,000  plate settings.

And we have to find the price elasticity of demand for silverware.

As we know that the formula for calculating price elasticity of demand is given by;

      Price elasticity, $E_d$  =  $\frac{\text{\% Change in quantity demanded}}{\text{\% Change in price}}$

                                      =  $\frac{Q_2-Q_1}{Q_1}\times \frac{P_1}{P_2-P_1}$

Here, $P_1$ = original price of planter setting = Rs 300

         $P_2$ = reduced price of planter setting = Rs 200

         $Q_1$ = original quantity demanded of plate setting = 3,000

         $Q_2$ = incraesed quantity demanded of plate setting = 8,000

So,  $E_d =-(\frac{Q_2-Q_1}{Q_1}\times \frac{P_1}{P_2-P_1})$

       $E_d =-(\frac{8,000-5,000}{3,000}\times \frac{300}{200-300})$    

        $E_d =-(\frac{5,000}{3,000}\times \frac{300}{(-100)})$

        $E_d =-(\frac{5}{3}\times \frac{3}{(-1)})$

        $E_d = 5$

Hence, the price elasticity of demand for silverware is 5.

Answer 2

Answer:

1.25

Step-by-step explanation:

We know are elasticity method as

=

Q+Q1

Q−Q1

∗

P−P1

P+P1

=

3000+5000

3000−5000

∗

300−200

300+200

=1.25.

So, Arc elasticity = 1.25

(differences were large hence arc elasticity is used.)