If the price of a bicycle changes from N120 to N80 and quantity bought changes from 300 to 500 units, the elasticity of demand for bicycle is

Answer Details

The elasticity of demand for bicycles is 2.0. Elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the percentage change in the quantity demanded divided by the percentage change in the price. In this case, the price of a bicycle changed from N120 to N80, which is a decrease of 33.3% [(120-80)/120 x 100]. The quantity bought also changed from 300 to 500 units, which is an increase of 66.7% [(500-300)/300 x 100]. Using the formula for elasticity of demand, we get: Elasticity of demand = percentage change in quantity demanded / percentage change in price Elasticity of demand = 66.7% / 33.3% Elasticity of demand = 2.0 A result of 2.0 for elasticity of demand indicates that the quantity demanded of bicycles is highly responsive to changes in its price. In other words, a 1% change in the price of bicycles will result in a 2% change in the quantity demanded of bicycles. This suggests that bicycles are highly price-sensitive goods, and consumers are likely to switch to substitute goods if the price of bicycles increases.