Question

Calculate and evaluate elasticity. Circle the elasticity calculation and the evaluation when finished

The quantity of new cars increases by 10 percent. If the price elasticity of demand for new cars is 1.25, the price of new cars will fail by:

Answer 1

Answer : Elasticity of demand=% Change in quantity demanded/ %Change in price

Elasticity of demand for new cars = 1.25

Elasticity of demand for new cars = 10%/ % change in price

1.25=10℅/ % Change in price

% Change in price= 10%/ 1.25= 8℅

When there is an increases in the quantity demanded than there is a decrease in the price of the product in the market.

As price of the new cars has been drop by 8℅ than quantity demanded increases by 10%