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.
Answer & explanation
Correct answer: option 3
$PED = \frac{ΔQ}{ΔP}×\frac{P}{Q}$
Given $\frac{ΔP}{ΔQ}=0.25$
$∴\frac{ΔQ}{ΔP}=4$
$∴PED=4×\frac{10}{100}=0.4$