ECONOMICS (CBSE/UGC NET)

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ECONOMICS

ELASTICITY OF DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
A cut in price from $1.50 to $1.20 sees demand for a product rise by 10%. What would the price elasticity of demand be for this product?
A
0.5
B
1
C
1.5
D
2
E
0.2
Explanation: 

Detailed explanation-1: -Price Elasticity of Demand = Percentage change in quantity / Percentage change in price. Price Elasticity of Demand =-15% รท 60% Price Elasticity of Demand =-1/4 or-0.25.

Detailed explanation-2: -If the elasticity of supply is 0.5, then a 10% decrease in price will result in a 5% increase in quantity supplied.

Detailed explanation-3: -If a 2% price rise results in a 4% decrease in quantity demanded, then (c) demand is elastic, and its total revenue decreases. When a product experiences a drastic change in the demand with a minimal price change, the demand for the product is said to be elastic.

Detailed explanation-4: -Inelastic demand occurs when changes in price cause a disproportionately small change in quantity demanded. For example, a good with inelastic demand might see its price increase by 30%, but demand falls by only 10% as a result.

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