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: by arc elasticity
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{(400-250)÷(400+250)} ÷ {(120-100)÷(120+100)} = (150÷650)÷(20÷220)= (3÷13)÷(1÷11)=33÷13=2.55 approximately
nehaagrawalagrawal78:
thankyou..can u please tell me the formula of above answer
{(new demand - old demand)÷(new demand + old demand)}÷{(new price - old price) ÷ (new price + old price)}
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okay
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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!
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