Question

If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is A) 0.83. B) 0.30. C) 0.60. D) 1.20.​

Answer 1

Answer:

If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is a. 0.30.

Answer 2

If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is 0.83.

• Rightward shift of supply curve indicates decrease in price and increase in quantity demanded.

Now, let the initial price be P and initial quantity be Q

• A 6 percent decrease in price would imply a change by 6 percent of original price P i.e. 6P/100=ΔP. Here we consider only change in the price and we are not concerned with increase or decrease.

• Similarly, an increase of 5 percent in the quantity would imply a change by 5 percent of the original quantity i.e. 5P/100= ΔQ. Here we consider only change in the quantity and we are not concerned with increase or decrease.

Price elasticity of demand is the responsiveness in demand of a commodity to a given change in its price.

$e_{d} =$(Δq/q)* (p/Δp)

∴ ((5q/100) / q)*(p/(6p/100))

= (p/q)* (5q/100)* (100/6p)

= (p/q)*(5q/6p)

= 5/6

=0.83

Therefore, option A 0.83 is the right answer.