A 10% fall in the price of a good raises the quantity demanded from 200 units to 210 units. What is the price elasticity of demand (absolute value)?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 0.5
Given:
Fall in price = 10%
Quantity demanded: 200 units to 210 units
Price elasticity of demand = percentage change in demand ÷ percentage change in price.
Percentage change in demand = (210 − 200) / 200 × 100 = 5%
|eD| = 5 / 10 = 0.5
Since 0.5 is less than 1, demand is inelastic at this price.
NCERT (2026-27): “2.6 Elasticity of Demand Demands for some goods are very responsive to price changes while demands for certain others are not so responsive to price changes. Price elasticity of demand is a measure of the responsiveness of the demand for a good to changes in its price. Price elasticity of demand for a good is defined as the percentage change in demand for the good divided by the percentage change in its price. …” “Note that the price elasticity of demand is a negative number since the demand for a good is negatively related to the price of a good. However, for simplicity, we will always refer to the absolute value of the elasticity.” |