If the prices of a commodity increases from N8.00 to N10.00 and the demand decreases from 100 to 80 respectively, wha is the price elasticity of demand for the commodity?
- 1
-
0.8
- 0.5
- 1.5
The correct answer is: B
Explanation
Price Elasticity of Demand = (Percentage Change in Quantity Demanded) / (Percentage Change in Price) x 100
First, let's calculate the percentage change in quantity demanded:
Percentage Change in Quantity Demanded = ((New Quantity Demanded - Initial Quantity Demanded) / Initial Quantity Demanded) x 100
Percentage Change in Quantity Demanded = ((80 - 100) / 100) x 100
= -20%
Next, let's calculate the percentage change in price:
Percentage Change in Price = ((New Price - Initial Price) / Initial Price) x 100
Percentage Change in Price = ((10 - 8) / 8) x 100
= 25%