ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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$2.00
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$2.40
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$2.66
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$20.00
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Detailed explanation-1: -What is the new quantity demanded when price elasticity is 1 and price changes from Rs. 15 to Rs. 10 and the original quantity demanded was 10 units? a)15 unitsb)20 unitsc)8 unitsd)12 unitsCorrect answer is option ‘A’.
Detailed explanation-2: -Price Elasticity of Demand = Percentage change in quantity / Percentage change in price. Price Elasticity of Demand =-15% ÷ 60% Price Elasticity of Demand =-1/4 or-0.25.
Detailed explanation-3: -If the price elasticity of demand is greater than 1, it is deemed elastic. That is, demand for the product is sensitive to an increase in price. A price increase for a fancy cut of steak, for example, may make many customers choose hamburger instead.
Detailed explanation-4: -The price elasticity of demand is estimated to be 2.