Price Elasticity of Demand Calculation
This solution determines the Price Elasticity of Demand (PED) using the provided consumer spending and price data.
Initial Calculations
Initial Quantity ($Q_1$) = Expenditure / Price = ₹ 240 / ₹ 15 = 16 units.
Final Quantity ($Q_2$) = Expenditure / Price = ₹ 300 / ₹ 20 = 15 units.
Change in Price ($\Delta P$) = Final Price ($P_2$) - Initial Price ($P_1$) = ₹ 20 - ₹ 15 = ₹ 5.
Change in Quantity ($\Delta Q$) = Final Quantity ($Q_2$) - Initial Quantity ($Q_1$) = 15 units - 16 units = -1 unit.
Elasticity Formula and Result
The Price Elasticity of Demand (PED) measures the responsiveness of quantity demanded to a change in price. The formula is:
$ PED = \left| \frac{\% \text{ Change in Quantity Demanded}}{\% \text{ Change in Price}} \right| $
This can also be written using the initial values as:
$ PED = \left| \frac{\Delta Q / Q_1}{\Delta P / P_1} \right| $
Substituting the calculated values:
$ PED = \left| \frac{-1 / 16}{5 / 15} \right| $
The calculated Elasticity of Demand is:
$ \frac{3}{20} $
Important Questions from Demand analysis
- If the gross elasticity of demand is negative, the two products in consideration are __________ products.
- For a linear demand curve, which of the following is true ?
In the above diagram, if curve IC represents income - consumption curve, then it means that :
Which one of the following demands states consumers are adequately buying all the products put into the marketplace?
Given below are two statements. one labelled as Assertion (A) and the other labelled as Reason (R).
Assertion (A): Auto companies and other consumer goods companies offer cash rebates to encourage purchase of the manufacturer's products within a specified period
Reason (R): The same product is priced differently at different times
In the context of the two statements above related to pricing strategy, which one of the following options is correct?
