Question

When the price of good
X increased from Rs.600
to Rs.650, its demand
decreased from 200
units to 188 units. What
is its price elasticity of
demand?
a 0.72
b 0.88
c 0.56
d 0.65​

Answer 1

Answer:

d

Explanation:

Here, P=Rs.4; P

1

=Rs.5;

△P=P

1

−P= Rs.5−Rs.4= Rs.1

Q=150 units; Q

1

=105 units; $$

△Q=Q

1

−Q= (105−150) units =(−)45 units

Price elasticity of demand(E

d

)=(−)

Q

P

×

△P

△Q

=(−)

150

4

×

1

−45

=1.2

Price elasticity of demand =1.2

Answer 2

Option A i.e. 0.72 is the correct answer.

Price elasticity of demand shows the responsive change of demand to a relative change in price.

Price elasticity for demand =$e_{p}$ = (ΔQ/ΔP) *(P/Q)

Original price (P) = Rs. 600

New Price (P1) = Rs. 650

Original demand (Q) =  200 units

New demand (Q1) = 188 units

Change in price = Rs. 50

Change in quantity = 12 units

$e_{p}$ = (12/50)*(600/200)

= 0.24 *3

= 0.72.

As the price elasticity of demand is less greater than 1, it implies that the demand will be inelastic demand i.e. a change in price will not affect the demand very significantly.