Question

7. Calculate and comment on nature of
Price elasticity of demand if, with a rise in
prices of Good-X from 10 to 12, the quantity
demanded falls by 40%,
(4 Points)
1. 6
2. 2
3. 5
4. -2​

Answer 1

Explanation:

Initial Price (P0) = Rs 10.

Final Price (P1) = Rs 12.

Percentage change in quantity demanded = -30.

Elasticity of demand = Percentage change in quantity demanded/percentage change in price.

= -30/(12-10/10 x 100)

= 1.5.

Elasticity of demand is greater than one. Therefore, demand for a good is elastic.

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