ECONOMICS
SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The demand for eggs decreases by 20% when the price of eggs increases by 10%. What is the elasticity of demand for eggs?
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2.0
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0.5
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3.0
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0.2
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Explanation:
Detailed explanation-1: -Perfectly Elastic (PED > 1) If the percentage of change in demand is more than the percentage of change in price, then the demand is perfectly elastic. For instance, if a 10% increase in price causes a 20% drop in demand, then the coefficient of PED is 3, which means that the demand is perfectly elastic.
Detailed explanation-2: -Hence, the reduced price per egg will be 40 paise as 20% of Rs 2 is 40paise.
Detailed explanation-3: -The elasticity of demand for eggs has been estimated to be 0.1.
Detailed explanation-4: -Complete step by step solution: Hence the reduced price of each egg is 40 paise.
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