Question

Suppose a department store has a sale on at silverware, if the price of a plate setting is reduced from Rs. $300$ to Rs. $200$ and the quantity demanded increase from $3000$ plate-sittings to $5000$ plate sittings, what is the price elasticity of demand for silverware?

• A. $.8$
• B. $1.0$
• C. $1.25$
• D. $1.50$

Answer 1

Answer: (C)

$1.25$

We know are elasticity method as
$=\frac{Q-Q1}{Q+Q1}\ast \frac{P+P1}{P-P1}$
$=\frac{3000-5000}{3000+5000}\ast \frac{300+200}{300-200}$
$=1.25$.

So, Arc elasticity = 1.25

(differences were large hence arc elasticity is used.)