If the price of a ball point pen falls from N1.00 to N0.60 and the quantity demanded increases from 200 to 300, the point elasticity of demand is equal to?
If the price of a ball point pen falls from N1.00 to N0.60 and the
quantity demanded increases from 200 to 300, the point elasticity of
demand is equal to?
Answer Details
If the price of a ballpoint pen falls from N1.00 to N0.60 and the quantity demanded increases from 200 to 300, the point elasticity of demand is equal to 1.25.
Elasticity of demand measures how responsive the quantity demanded of a good is to changes in its price. When the price of a good falls, we would expect people to buy more of it, and vice versa. The point elasticity of demand is a measure of the responsiveness of the quantity demanded to a change in price at a specific point.
To calculate the point elasticity of demand, we use the formula:
% change in quantity demanded / % change in price
In this case, the price has fallen by 40% (from N1.00 to N0.60), and the quantity demanded has increased by 50% (from 200 to 300). Plugging these values into the formula gives:
% change in quantity demanded = (300-200) / 200 x 100% = 50%
% change in price = (0.60-1.00) / 1.00 x 100% = -40%
So the point elasticity of demand is:
-50% / -40% = 1.25
In other words, the quantity demanded is very responsive to changes in price, and a 40% decrease in price has led to a 50% increase in quantity demanded.
In summary, if the price of a ballpoint pen falls from N1.00 to N0.60 and the quantity demanded increases from 200 to 300, the point elasticity of demand is equal to 1.25, which indicates a high level of responsiveness of the quantity demanded to changes in price.