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CSEET · Economic and Business Environment · Basics of Demand and Supply and Forms of Market Competition

When the price of a commodity falls from Rs 50 to Rs 40 per unit and the quantity demanded rises from 100 units to 130 units, what is the price elasticity of demand (in absolute terms, using the percentage method with original values as base)?

Price elasticity is 1.5. Quantity demanded rises by 30 percent (30 on 100) while price falls by 20 percent (10 on 50). Dividing the percentage change in quantity by the percentage change in price gives 1.5, so demand is elastic.

  1. A0.67
  2. B1.50Correct
  3. C2.00
  4. D3.00

Explanation

Percentage change in quantity = 30/100 = 30%. Percentage change in price = 10/50 = 20%. Elasticity = 30/20 = 1.5. The value 0.67 comes from inverting the ratio (20/30), which is a wrong-formula mistake.

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