Question

Suppose the price of a commodity falls from Rs.$6$ to Rs. $4$ per unit and due to this quantity demanded of the commodity increases from $80$ units to $120$ units. Find the price elasticity of demand.

• A. $1$
• B. $2$
• C. $0.5$
• D. Cannot be determined

Answer 1

Answer: (A)

$1$

$\Rightarrow$ Let $p_1=4,p_2=6,q_1=80$ and $q_2=120$

$\Rightarrow$ $\Delta q=q_2-q_1=120-80=40$

$\Rightarrow$ $\Delta p=p_2-p_1=6-4=2$

$\Rightarrow$ $\frac{p_1+p_2}{2}=\frac{4+6}{2}=5$

$\Rightarrow$ $\frac{q_1+q_2}{2}=\frac{80+120}{2}=100$

$\Rightarrow$ $e_s=\frac{\Delta q}{\Delta p}\times \frac{p_1+p_2}{q_1+q_2}$

$\Rightarrow$ $e_s=\frac{40}{2}\times \frac{5}{100}=\frac{20}{1}\times \frac{1}{20}=1$