If ratio between the change in price & change in quantity demanded is 0.25. The consumer demands 100 units at an initial price of Rs 10 per unit. Calculate the price elasticity of demand.

(-) 0.40

The correct answer is option (3) : (-) 0.40

Given Data:

• Ratio between the change in price and change in quantity demanded = 0.25
• Initial quantity demanded (Q₁) = 100 units
• Initial price (P₁) = Rs 10 per unit
• Formula for Price Elasticity of Demand (Ed): Ed=%ΔQ/%ΔP
  

Step 1: Expressing Given Ratio

The given ratio 0.25 represents:

(ΔP/P)/ (ΔQ/Q)=0.25

Since price elasticity of demand is calculated as: Ed=%ΔQ/%ΔP

Taking the reciprocal of 0.25:

Ed=1/0.25 = 0.4

Since the law of demand states that price and quantity demanded are inversely related, price elasticity is negative. So, the answer is: (-) 0.40