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      Question

      Calculate the price elasticity of demand for the product

      if an increase in its price from Rs.20 to Rs.22 leads to a decline in the quantity demanded from 100 units to 80 units.
      A +2 Correct Answer Incorrect Answer
      B +2.5 Correct Answer Incorrect Answer
      C -2 Correct Answer Incorrect Answer
      D -2.5 Correct Answer Incorrect Answer
      E -2.2 Correct Answer Incorrect Answer

      Solution

      Given, Q1 = 100 Q2 = 80 P1 = 20 P2 = 22   Price Elasticity of Demand (PED) = % change in Quantity Demanded​ / % change in Price   to Calculate: % change in Quantity Demanded = (Q2 – Q1) / Q1                                                             = (80 -100) / 100 = -20%   to Calculate: % change in Price = (P2 – P1) / P1                         = (22 -20) / 20 = 10%   to calculate Price elasticity: PED = -20% / 10% = -2   Please note: ·        The negative sign shows the inverse relationship between price and quantity demanded (Law of Demand). ·        The absolute value = 2, which is greater than 1, so demand is elastic.

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