Using the arc (mid-point) method, the price elasticity of demand for headphones when price falls from Rs 500 (Q = 100) to Rs 400 (Q = 150) is:

1. Arc formula: $E_p = \dfrac{Q_2-Q_1}{Q_2+Q_1}\times\dfrac{P_2+P_1}{P_2-P_1}$. 2. Substitute $Q_1=100,Q_2=150,P_1=500,P_2=400$: $E_p = \dfrac{50}{250}\times\dfrac{900}{100}$. 3. Compute: $\dfrac{50}{250}=0.2$ and $\dfrac{900}{100}=9$, so $0.2\times9$. 4. This equals 1.8 (absolute value). Inverting the ratios wrongly gives 0.56; correct is 1.8. _Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.22_