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The price of a commodity falls from Rs 6 to Rs 4 and quantity demanded rises from 10 units to 15 units. Using the point method on the original values, the coefficient of price elasticity of demand is:
A2.5
B0.67
C1.5
D0.40
Answer & Solution
Correct answer: C. 1.5
1. Use $E_p = \dfrac{\Delta q}{\Delta p}\times\dfrac{p}{q}$.
2. Here $\Delta q = 15-10 = 5$, $\Delta p = 6-4 = 2$, original $p=6$, $q=10$.
3. Substitute: $E_p = \dfrac{5}{2}\times\dfrac{6}{10} = \dfrac{30}{20}$.
4. This equals 1.5 (sign dropped by convention).
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.18_
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