CMA Foundation · Fundamentals of Business Economics and Management · Theory of Demand and Supply
Demand for a product is given by Q = 120 - 4P. At a price of ₹20, the point price elasticity of demand (in absolute value) is:
The point elasticity is 2.0. At a price of ₹20, quantity demanded is 120 minus 80, which is 40 units. Elasticity equals the slope magnitude of 4 multiplied by price over quantity, 20 divided by 40, giving 4 times 0.5, which is 2.
- A2.0Correct
- B1.5
- C0.5
- D4.0
Explanation
At P = 20, Q = 120 - 80 = 40. Point elasticity = (dQ/dP) x (P/Q) = 4 x 20/40 = 2.0 in absolute terms. Option 4.0 ignores the P/Q factor and uses only the slope. Option 0.5 inverts the ratio P/Q.
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