Question

As a result of a 5% increase in price, the demand for commodity X increases by 12%. The price elasticity of demand will be:

As a result of a 5% increase in price, the demand for commodity X increases by 12%. The price elasticity of demand (e_d) for the commodity will be:

Options

• e_D > 1

• e_D < 1

• e_D = 1

• e_D = ∞

Answer 1

e_D > 1

Explanation:

Price elasticity of demand (e_d) is measured as the percentage change in quantity demanded divided by the percentage change in price.

Given:

Percentage change in price = 5%

Percentage change in quantity demanded = 12%

Therefore,

e_d = `"% Change in Quantity Demanded"/"% Change in price"`

= `12/5`

= 2.4

Since 2.4 > 1, the price elasticity of demand is greater than 1.