The price of a good falls from Rs 20 to Rs 18 and the quantity demanded rises from 40 units to 46 units. What is the price elasticity of demand (absolute value), and how is the demand described?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 1.5; elastic
Given:
Old price P1 = Rs 20, new price P2 = Rs 18
Old quantity Q1 = 40, new quantity Q2 = 46
Price elasticity of demand = percentage change in demand ÷ percentage change in price.
% change in quantity = (46 − 40)/40 × 100 = 15
% change in price = (18 − 20)/20 × 100 = −10
|eD| = 15/10 = 1.5
Since 1.5 is more than 1, demand is elastic.
NCERT (2026-27): “2.6 Elasticity of Demand … 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. …” “… When the percentage change in quantity demanded is more than the percentage change in market price, the demand is said to be highly responsive to changes in market price and the estimated eD is more than one. The demand for the good is said to be elastic at that price. …” |