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
Answers
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2
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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