Question : If the price of a product increases from INR 50 to INR 60 per unit, and the quantity demanded decreases from 100 units to 80 units, calculate the price elasticity of demand.
Option 1: 0.5
Option 2: 1.0
Option 3: 1.5
Option 4: 2.0
Correct Answer: 0.5
Solution : The correct answer is (a) 0.5
To calculate the price elasticity of demand, we'll use the formula:
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
Given that the quantity demanded decreases from 400 units to 300 units, we can calculate the percentage change in quantity demanded:
Percentage change in quantity demanded = [(300 - 400) / 400] * 100% = -25%
The price increases from ₹20 to ₹30 per unit, so we can calculate the percentage change in price:
Percentage change in price = [(30 - 20) / 20] * 100% = 50%
Now, let's substitute the values into the elasticity formula:
Elasticity = (-25% / 50%) = -0.5
The calculated price elasticity of demand is -0.5
