Question

The price of a commodity decreases from ₹100 to ₹80. As a result, its quantity demanded increases from \(200\) units to \(260\) units. Using the percentage method, the price elasticity of demand is closest to:

• A. \(1.0\)
• B. \(1.5\)
• C. \(2.0\)
• D. \(3.0\)

Hint:

For MCQs, use: \[ E_d = \frac{%\Delta Q}{%\Delta P} \] If: \[ E_d>1 \] Demand is elastic. If: \[ E_d<1 \] Demand is inelastic.

Answer 1

The Correct Option is B

Concept: Price Elasticity of Demand measures the responsiveness of quantity demanded to a change in price. Formula: \[ E_d = \frac{%\Delta Q}{%\Delta P} \] Since elasticity is usually expressed as an absolute value in objective questions, we ignore the negative sign.

Step 1: Calculate percentage change in quantity demanded. Initial quantity: \[ Q_1=200 \] Final quantity: \[ Q_2=260 \] Change: \[ 260-200=60 \] Percentage change: \[ \frac{60}{200}\times100 \] \[ =30% \]

Step 2: Calculate percentage change in price. Initial price: \[ P_1=100 \] Final price: \[ P_2=80 \] Change: \[ 80-100=-20 \] Percentage change: \[ \frac{-20}{100}\times100 \] \[ =-20% \] Ignoring sign: \[ 20% \]

Step 3: Calculate elasticity. \[ E_d = \frac{30}{20} \] \[ = 1.5 \]

Step 4: Interpret the result. Since: \[ E_d>1 \] Demand is relatively elastic. Consumers respond significantly to changes in price.

Step 5: Verification. \[ \frac{30}{20}=1.5 \] Hence the answer is verified.

Step 6: Final conclusion. \[ \boxed{E_d=1.5} \] Therefore, \[ \boxed{\text{Option (B)}} \]