Question

Alpha Ltd market share was declining due to high competition in the market so it decided to enter a new segment. It wanted to determine the relationship between change in the quantity demanded of the product due to change in the price of the product in the market. Assume that at the price of ₹100, the demand for the product is 400 units. If the price of the product increases to ₹120, the demand decreases to 250 units. Calculate the price elasticity:
a) Using Arc elasticity method
b) Using Percentage method

Answer 1

a I think arc elasticity method

Answer 2

Given data:

Price p1 = Rs.100 ; quantity q1 = 400 units

p2 = Rs250; q2 = 250 units

Arc elasticity method:

Price elasticity = [(q2-q1) / (p2-p1)] * [(p1+p2) / (q1+q2)]

= [(250-400) / (120-100)] * [(100+120) /(400+250)]

= (-150 / 20) * (220 /650 )

Ep = -2.53

Using Percentage method:

Price elasticity = [(q2-q1) / (p2-p1)] * (p1/ q1)

=  [(250-400) / (120-100)] * (100/400)

= (-150 / 20) * (1/4)

Ep = -1.07

Hope it helps. Thank You!