Question

If the price a product increases from R200 to R250 then demand falls from R450 to 300 units.Calculate Ped & determine the degree of elasticity

Answer 1

Answer:

0.4

Explanation:

by using the formulae to calculate price elasticity of demand

Answer 2

Given:

If the price of a product increases from R200 to R250 then demand falls from R450 to 300 units. Calculate Ped & determine the degree of elasticity?

To find:

Calculate Ped & determine the degree of elasticity?

Solution:

We know,

$\boxed{\bold{Price \:Elasticity \:of\:Demand = \frac{\%\:change\: in\: the\:quantity\:demanded }{\%\:change\: in\: the\:price } }}$

Finding the percentage change in price:

We have,

Original price, P₀ = 200

New price, P₁ = 250

∴ % change in the price = $\frac{P_1 - P_0}{P_0} \times 100 = \frac{250 - 200}{200} \times 100 = 25\%$

Finding the percentage change in quantity demanded:

We have,

Original quantity, Q₀ = 450 units

New quantity, Q₁ = 300 units

∴ % change in the quantity demanded,

= $\frac{Q_1 - Q_0}{Q_0} \times 100 = \frac{300 - 450}{450} \times 100 = -33.33\%$

Finding the PED:

On substituting the calculated values in the formula of PED above, we get

$PED = \frac{-33.33\%}{25\%}$

$\implies \boxed{\bold{PED = (-)1.33}}$

Finding the degree of elasticity:

We got the price elasticity of demand i.e., PED = (-) 1.33

⇒ The degree of elasticity is said to be → $\boxed{\bold{relatively \:inelastic}}$.

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