Question

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

Options

• ed < 1

• ed > 1

• ed = 1

• ed = a

Answer 1

ed > 1

Explanation:

Price elasticity of demand (ed) 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,

Percentage change in price = 5%

Percentage change in quantity demanded = 12%

Therefore,

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

= `12/5`

= 2.4

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