Q10 of 36 Page 1

(a) Define price elasticity of demand.

(b) If the price of a commodity rises by 40% and its quantity demanded falls from 150 units to 120 units, calculate the coefficient of price elasticity of demand for the commodity.


a) Price elasticity of demand is the degree of responsiveness of demand to change in the price of the commodity. If a proportionate change in demand is more than the change in price demand is said to be elastic, and if the change in demand is less than the change in price the demand is said to be inelastic.

Ed = % change in quantity demanded/ % change in price


b) Ed = % change in quantity demanded/ % change in price


= (-)150-130/150 * 100 / 40


= (-) 30/150* 100 / 40


= (-)20 / 40


= -0.5


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