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
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To calculate the price elasticity of demand, this formula can be used: PED (price elasticity of demand) = Change in Quantity demanded /Original demanded quantity which in whole is divided by Change in price of commodity/Original price. This comes to PED = (250-400)/400*100/(120-100) which is equivalent to -150/400 * 100/20 = -15/8. thus the asnwer is -1.875.
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