alleryThe quantity demanded at price Rs 9 per unit is 800 units. Price falls by 25% and quantity demanded rises by 160 units. The price elasticity of demand is:
A1.25
B0.8
C0.2
D1.6
Answer & Solution
Correct answer: B. 0.8
1. First find % change in quantity: $\dfrac{160}{800}\times100 = 20\%$.
2. % change in price is given as 25%.
3. Use $E_p = \dfrac{\%\ \text{change in } q}{\%\ \text{change in } p} = \dfrac{20}{25}$.
4. This equals 0.8. Picking 1.25 wrongly inverts the ratio; the correct value is 0.8.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.19_
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