The own-price elasticity of demand for apples is −1.2. If the price of apples falls by 5 per cent, what will happen to the quantity of apples demanded?
a. It will increase 6 per cent.
b.It will increase 4.2 per cent.
c.It will increase 5 per cent.
d.It will fall 3.8 per cent.
Solution:
The correct answer is a. It will increase by 6 percent.
"Price\\; elasticity\\; of \\;demand (PED) =\\frac{\\%\\;change\\; in\\; quantity\\; demanded}{\\%\\; change\\; in\\; price}"
"-1.2 =\\frac{\\%\\;change\\; in\\; quantity\\; demanded}{-5\\% }"
"\\%\\;change\\; in\\; quantity\\; demanded = -5\\%\\times-1.2 = 6\\%"
% Change in qty demanded = 6%
Quantity demanded will increase by 6%
Comments
Leave a comment