Question

due to recession price of petrol increased from rs 75 to rs 80 in mumbai city . The demand for petrol has decreased from 120000 liters to 118000 liters calculate the price elasticity from above situation answer

Answer 1

Answer:

Price elasticity = -0.2605

Explanation:

Elasticity= % change in price/ % change in quantity

Initial Price (PI) = 75, New Price (PN) = 80,

Initial Quantity (QI) = 120000, New Quantity (QN) = 118000.

PED = ( (QN − QI) / (QN + QI) / 2 ) / ( (PN - PI) / (PN + PI) / 2 )

PED = ( −2000 / (238000 / 2) / ( 5 / (155 / 2)

PED = -0.0042 / 0.0161

PED = -0.2605

Since |PED| < 1 ⇒ demand is inelastic.