Question

Suppose a department store has a sale on its silverware. If the price of a plate-set is reduced from Rs. 300 to Rs. 200 and the quantity demanded increases from 3,000 plate-setting to 5,000 plate-settings, what is the price elasticity of demand for silverware?

• A. 0.8
• B. -2
• C. 1.25
• D. -1.5

Answer 1

Answer: (B)

-2

Price elasticity of demand $=\frac{Percentagechangeinquantitydemanded}{Percentagechangeinprice}$

$\Rightarrow E_d=\frac{\frac{\Delta Q}{Q}}{\frac{\Delta P}{P}}$

$\Rightarrow E_d=\frac{\frac{3000-5000}{3000}}{\frac{300-200}{300}}$

$\Rightarrow E_d=\frac{\frac{-2000}{3000}}{\frac{100}{300}}$

$\Rightarrow E_d=\frac{-2000\times 300}{3000\times 100}=-2$

Hence, the correct option is B.