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Question

Suppose a department store has a sale on at silverware, if the price of a plate setting is reduced from Rs. \(300\) to Rs. \(200\) and the quantity demanded increase from \(3000\) plate-sittings to \(5000\) plate sittings, what is the price elasticity of demand for silverware?
(A) \(.8\)
(B) \(1.0\)
(C) \(1.25\)
(D) \(1.50\)

Answer

Answer: C
We know are elasticity method as
\(=\dfrac{Q-Q1}{Q+Q1}\ast\dfrac{P+P1}{P-P1}\)
\(=\dfrac{3000-5000}{3000+5000}\ast\dfrac{300+200}{300-200}\)
\(=1.25\).
So, Arc elasticity =1.25
(differences were large hence arc elasticity is used.)
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