Use the table below to answer question 17 and 18.
Market Demand Schedule for Commodity X. (begin{array}{c|c}
text{ Price N} & text{Quantity(Million units)} \ 60 & 100 \
50 & 140 \
40 & 220 \
30 & 260 \
20 & 300 \
10 & 340 \
end{array})
If the price of commodity X falls from N40.00 to N30.00 what is the price elasticity of demand?
-
A.
0.62 -
B.
0.73 -
C.
1.00 -
D.
1.50
Correct Answer: Option A
Explanation
The price elasticity of demand is calculated as the percentage change in quantity divided by the percentage change in price.
Change in quantity demanded = 260 – 220 = 40
percentage change = (frac{40}{260}) = 0.154
Change in price = 40 – 30 = 10
percentage change = (frac{10}{40}) = 0.25
price elasticity = (frac{0.154}{0.25}) = 0.616 approximately 0.62