Question

Suppose an individual buys 30 bananas when its price is ₹10 per banana. When the price increases to ₹14 per banana, she reduces her demand to 24 bananas. In this case, what will be the price elasticity of demand?

• A. 0.3
• B. 0.2
• C. 0.5
• D. 0.4

Hint:

Unless the question explicitly says “arc/midpoint elasticity”, school/board items usually expect the simple percentage method using the initial values as base.

Answer 1

The Correct Option is C

Step 1: Identify changes.
Original price (\(P_1 = \text{₹}10\)), new price (\(P_2 = \text{₹}14\)) results in a price change (\(\Delta P = 4\)).
Original quantity (\(Q_1 = 30\)), new quantity (\(Q_2 = 24\)) results in a quantity change (\(\Delta Q = -6\)).
Step 2: Apply the percentage (original-base) method.
\[ E_d = \left|\frac{\Delta Q}{Q_1}\right| \Big/ \left|\frac{\Delta P}{P_1}\right| = \frac{6/30}{4/10} = \frac{0.2}{0.4} = 0.5 \] Step 3: Interpretation.
Since \(E_d = 0.5\), which is less than 1, demand is considered inelastic within this price range.
Final Answer:
\[ \boxed{E_d = 0.5 \;(\text{inelastic})} \]