Suppose that the price of a commodity increases from ₹ 90 to ₹ 110 and the demand curve shows that the corresponding reduction in quantity demanded is from 240 units to 160 units. Then, the coefficient of the price elasticity of demand will be
1·0
2·4
0·5
2·0
Answer is Right!
Answer is Wrong!
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UPSC CAPF – 2019
PED = |(Q2 – Q1) / ((Q1 + Q2) / 2)| / |(P2 – P1) / ((P1 + P2) / 2)|
Given:
P1 = ₹ 90, Q1 = 240 units
P2 = ₹ 110, Q2 = 160 units
Change in Q = Q2 – Q1 = 160 – 240 = -80
Change in P = P2 – P1 = 110 – 90 = 20
Midpoint Q = (Q1 + Q2) / 2 = (240 + 160) / 2 = 400 / 2 = 200
Midpoint P = (P1 + P2) / 2 = (90 + 110) / 2 = 200 / 2 = 100
PED = |-80 / 200| / |20 / 100|
PED = |-(0.4)| / |(0.2)|
PED = 0.4 / 0.2
PED = 2.0
– The formula for arc elasticity (midpoint method) is appropriate for calculating elasticity over a range of prices and quantities.
– The absolute value of the calculated elasticity is typically reported.