Question

Suppose the price of movies seen at a theatre rises from Rs. $120$ per person to Rs. $200$ per person. The theatre manager observes that the rise in price because attendance at a given movie to fall from $300$ persons to $200$ persons. What is the price elasticity of demand for movies?

• A. $.5$
• B. $.8$
• C. $1.0$
• D. $1.2$

Answer 1

The correct option is B $.8$

Arc elasticity may be expressed as: [(Q1 - Q)/(Q1 + Q)] x [(P1 + P)/(P1 - P)]

Therefore,

[(300 - 200)/(300 + 200)] x [(200 + 120)/(200 - 120)]

= (100/500) x (320/80)

So, Arc elasticity = 4/5 = 0.8

(differences were large hence arc elasticity is used.)