Suppose a consumer purchase 15 bananas when its price is Rs. 5 per banana. When the price increases to Rs. 7 per banana, consumer reduces his demand to 12 bananas. Price elasticity of demand would be .............
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 0.5
Given Values:
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Initial Quantity (Q1): 15 bananas
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New Quantity (Q2): 12 bananas
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Initial Price (P1): Rs. 5
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New Price (P2): Rs. 7
$e_d$ = |(∆Q/$Q_1$) * ($P_1$/∆P)|
=| (-3/15) * (5/2)
=|-3/6|
= 0.5