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CA Foundation · Business Economics · Theory of Demand and Supply

The demand function for a good is Q = 120 − 4P. At a price of ₹10, the point price elasticity of demand (in absolute terms) is:

The point elasticity at a price of ₹10 is 0.50. Quantity demanded is 80 at that price, the slope of the demand function is minus four, and elasticity equals four multiplied by ten over eighty, which is one half. Demand is inelastic there.

  1. A0.33Correct
  2. B0.50
  3. C2.00
  4. D3.00

Explanation

At P = 10, Q = 120 − 40 = 80. Slope dQ/dP = −4. Elasticity = 4 × (10/80) = 0.50. So the correct value is 0.50, not 0.33; check: 4×10/80 = 0.5.

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