Question

The price of a new computer game has demand of 3,000 units at $50 and 2,500 units at $60. Calculate the Price Elasticity of Demand rounded to two decimal places. Which statements are correct?

(A) If the price decreases 10%, demand will decrease 10%.
(B) The demand is inelastic.
(C) If the price increases 10%, demand will decrease 10%.
(D) The demand is unitary elastic.
(E) If the price increases 10%, demand will increase 10%.

Answer 1

Answer:

option D "The demand is unitary elastic."

Explanation:

Data provided:

At price, P1 = 3,000 units

Demand, D1 = $ 50

also,

at price P2 = $ 60

Demand, D2 = 2,500 units

Now,

the percentage change in price = $\frac{60-50}{50}\times100$

or

the percentage change in price = 20%

and,

The percentage change in the quantity = $\frac{2500-3000}{2500}\times100$

or

The percentage change in the quantity = -20%

The elasticity in demand (Ed) is given as:

Ed = (Percentage change in quantity) / (Percentage change in price)

on substituting the values, we get

Ed = (-20%) / 20%

or

Ed = - 1

Here the negative sign depicts the inverse relation between the price and the demand.

hence, the correct answer is option D "The demand is unitary elastic."