Question

Given the following demand schedule:

Price (₹)	Quantity (units)
60	10
50	12

What would be the price elasticity of demand when the price falls from ₹ 60 to ₹ 50?

Options

• e_p > 1

• e_p = 1

• e_p < 1

• e_p = 0

Answer 1

e_p = 1

Explanation:

When a given percentage change in the price of a commodity causes an equivalent percentage change in the quantity demanded, then the elasticity of demand is said to be unitary (or one).

e_p = `"Percentage change in quantity demanded"/"Percentage change in price"` 

Percentage change in quantity = `(12-10)/10xx100`

= `2/10xx100`

= 20%

Price changes from ₹ 60 to ₹ 50

Percentage change in price = `(60-50)/60xx100`

= `10/60xx100`

= 16.67%

Price elasticity of demand = `(20%)/(16.67%)` = 1.2

The price elasticity of demand is approximately 1.2.