If a firm can sell 3,000 units of product A at R10 per unit and 5,000 at R8, then:Multiple Choicethe price elasticity of demand is 2.25.A is a complementary good.D.A is an inferior good.the price elasticity of demand is 0.44.
Question
If a firm can sell 3,000 units of product A at R10 per unit and 5,000 at R8, then:Multiple Choicethe price elasticity of demand is 2.25.A is a complementary good.D.A is an inferior good.the price elasticity of demand is 0.44.
Solution
The price elasticity of demand is a measure of how much the quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.
Here's how to calculate it step by step:
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Calculate the initial quantity and the new quantity. In this case, the initial quantity is 3,000 units and the new quantity is 5,000 units.
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Calculate the initial price and the new price. In this case, the initial price is R10 and the new price is R8.
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Calculate the percentage change in quantity. This is (New Quantity - Initial Quantity) / Initial Quantity * 100%. So, (5,000 - 3,000) / 3,000 * 100% = 66.67%.
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Calculate the percentage change in price. This is (New Price - Initial Price) / Initial Price * 100%. So, (R8 - R10) / R10 * 100% = -20%.
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Finally, calculate the price elasticity of demand, which is the percentage change in quantity divided by the percentage change in price. So, 66.67% / -20% = -3.33.
So, the price elasticity of demand is -3.33. This means that the demand for product A is elastic, and a decrease in price leads to a more than proportionate increase in quantity demanded. Therefore, the correct answer is not listed in the multiple choice options provided.
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