Theory question 102
ElasticitySection A (answer one question only from this section)
(a) Define price elasticity
(b) If at N8.00 per tuber, twenty tubers were demanded and when the price fell to N6.00 per tuber, thirty tubers were demanded, what is the elasticity of demand?
Show the model answer
Model answer
(a) Price elasticity of demand is the degree of responsiveness of quantity demanded to a change in price; measured as % change in quantity demanded ÷ % change in price.
(b) % change in quantity = (30 − 20)/20 × 100 = 50%
% change in price = (8 − 6)/8 × 100 = 25%
Elasticity = 50 ÷ 25 = 2
Since 2 > 1, demand is elastic.
Explanation
Use the original price and quantity as the base.