If the price of a good increases from ₹20 to ₹25 and the quantity demanded decreases from 100 units to 80 units, calculate the price elasticity of demand.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 0.8
Price Elasticity of Demand (PED)=% change in quantity demanded / % change in price
Percentage change in quantity demanded = [(100- 80) /100] * 100 = 20%
Percentage Change in Price = [ (25-20) /20] * 100 = 25 %
Price Elasticity of Demand (PED)= =20 % /25% = 0.8