CA Foundation P4 · Chapter 2 · Question 4 of 15
The price of a product rises from Rs. 20 to Rs. 25 and quantity demanded falls from 400 units to 300 units. Using the percentage (proportionate) method with the original values as base, price elasticity of demand is:
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Reveal answer & explanation
Correct answer: D) 1 (unitary elastic)
Explanation
Percentage change in quantity = (300 - 400) / 400 x 100 = -25%. Percentage change in price = (25 - 20) / 20 x 100 = +25%. Ed = 25 / 25 = 1 (ignoring the minus sign). So demand is unitary elastic over this range.
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