Question

Price of a car fall from 500lakh to 4.5 lakh the demand increases from 400 to 500 units what is the price elasticity of demand

Answer 1

PED= % CHANGE IN QTY DD/ % CHANGE IN PRICE

therefore by using the mid point method we have Q2-Q1/(Q2+Q1)/2

all divided by P2-P1/(P2+P1)/2

so, Q1=400,Q2=500>   500-400=100

                                       500+400/2=450

and P1=500L,P2=4.5L>    4.5-500=-495.5

                                           4.5+500/2=252.25

therefore    Q= 100/450=0.222

                   P=-495.5/252.25=-1.964

SO > % CHANGE OF QTY D/%CHANGE IN PRICE

                 0.222/-1.964 =-0.11

But we let go the -ve sign hence our result is 0.11<1 less than 1

hence PED is inelastic because demand is less than one