Question

When the price of a product increases by 5% and the quantity demanded of the product changes from 1 500 to 1 200, what is the price elasticity of demand of the product? (Ignore the negative sign and round off to 2 decimal places)

Answer 1

Price elasticity of demand= percentage change in quantity demanded divided by the percentage change in price.

Here, percentage change in quantity demanded $=\frac {1200-1500}{1500}\times 100$ $=-20$ %

Price elasticity of demand $=\frac{-20}{5}=-4.00$$= 4.00$ 

The percentage change in quantity demanded is to a larger extent as compared to percentage change in price.