Question:
The demand curve for a product is given by: \( Q = 900 - 40P \). Where \( Q \) is the quantity and \( P \) is the price of the product. The price of the product is Rs. 15. What is the price elasticity of demand if the price increases to Rs. 20?
The demand curve for a product is given by: \( Q = 900 - 40P \). Where \( Q \) is the quantity and \( P \) is the price of the product. The price of the product is Rs. 15. What is the price elasticity of demand if the price increases to Rs. 20?
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Price elasticity of demand measures responsiveness of quantity demanded to price changes. Use percentage change formula carefully.
Updated On: Sep 18, 2025
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The Correct Option is A
Solution and Explanation
Step 1: Calculate initial quantity: \( Q_1 = 900 - 40 \cdot 15 = 300 \)
Step 2: Calculate new quantity: \( Q_2 = 900 - 40 \cdot 20 = 100 \)
Step 3: Price elasticity formula: \( E_d = \frac{%\Delta Q}{%\Delta P} = \frac{(Q_2 - Q_1)/Q_1}{(P_2 - P_1)/P_1} = \frac{(100 - 300)/300}{(20-15)/15} = \frac{-200/300}{5/15} = -2/0.333 = -6 \)
Oops! Let's carefully compute: \(\frac{-200/300}{5/15} = \frac{-0.6667}{0.3333} \approx -2\).
Actually, using midpoint method, the elasticity ≈ 3.
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