Q. 75.0( 1 Vote )

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Answer :


Price elasticity refers to the responsiveness of the quantity demanded to the changes in the price. It is the ratio between the percentage changes in the quantity demanded to the percentage changes in price. The value of price elasticity ranges from perfectly inelastic (zero) to perfectly elastic (infinity).


The order would be -0.53, -0.80, -0.87 and -3.1. The minus sign would not be considered as it represents only the inverse relationship between the price and quantity demanded. It does not represent the inherent value of elasticity.


b.


Price elasticity = Percentage in Quantity demanded /Percentage change in price


= (rQs/rP)*(P/Qs)


= (50/5)*(28/50s) = 5.6


The price elasticity of demand for the commodity is 5.6. The demand is elastic in nature. When the change in price results in a more than proportionate change in the quantity demanded, the demand is considered as elastic. The elasticity coefficient of elastic demand will be greater than 1 (Ed>1). The demand curve would be a flat downward sloping curve.


E.g. luxuries



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