What is the elasticity of demand for commodity X, if at a price of N25 the quantity demanded is 80 and when the price is reduced to N20 the quantity demande...
What is the elasticity of demand for commodity X, if at a price of N25
the quantity demanded is 80 and when the price is reduced to N20 the
quantity demanded is 100?
Answer Details
The elasticity of demand measures how much the quantity demanded of a commodity changes in response to a change in its price. If a small change in price causes a large change in the quantity demanded, demand is said to be elastic. If a large change in price causes only a small change in the quantity demanded, demand is said to be inelastic.
To calculate the elasticity of demand for commodity X, we use the formula:
Elasticity of demand = percentage change in quantity demanded / percentage change in price
In this case, the price changes from N25 to N20, which is a 20% decrease in price. The quantity demanded changes from 80 to 100, which is a 25% increase in quantity demanded. Therefore, the elasticity of demand for commodity X is:
Elasticity of demand = 25% / 20% = 1.25
Since the elasticity of demand is greater than 1, we can conclude that the demand for commodity X is elastic. This means that consumers are sensitive to changes in the price of commodity X, and a small change in price causes a relatively large change in the quantity demanded.