Question

for a product 'x', when price falls from $20 to $10, quantity demanded increases from 50 units to 100 units. what is the price elasticity of demand for product x ?

Answer 1

When the price of product X falls 50%, the demanded quantity increases 100%. The price elasticity of demand for product X is 2.

Price elasticity of demand measures how sensitive the change in demanded quantity to the change in price.

price elasticity of demand = % change in quantity / % change in price

Data from the problem:

% change in demanded quantity = (100 - 50) / 50  x 100% = 100%

% change in price = (10 - 20)/20 x 100% = 50%

Hence,

price elasticity of demand = 100% / 50% = 2

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