GENERAL KNOWLEDGE

IF THE QUANTITY DEMANDED OF A COMMODITY INCREASES FROM 20 UNITS TO 30 UNITS WHEN THERE IS AN INCREASE IN PRICE FROM 4.00 DOLLARS TO 5.00 DOLLARS, THE ELASTICITY OF DEMAND IS

The elasticity of demand is a measure of the responsiveness of the quantity demanded of a commodity to a change in its price. It is calculated using the following formula:

Elasticity of Demand = Percentage Change in Quantity Demanded / Percentage Change in Price

In this case, the quantity demanded increases from 20 units to 30 units when the price increases from $4.00 to $5.00. To determine the elasticity of demand, we need to calculate the percentage change in both the quantity demanded and the price.

1) Percentage Change in Quantity Demanded = (Final Quantity – Initial Quantity) / Initial Quantity * 100

  • Percentage Change in Quantity Demanded = (30 – 20) / 20 * 100 = 50%

2) Percentage Change in Price = (Final Price – Initial Price) / Initial Price * 100

  • Percentage Change in Price = (5 – 4) / 4 * 100 = 25%

Now, we can calculate the elasticity of demand:

Elasticity of Demand = 50% / 25% = 2.00

Based on this calculation, the elasticity of demand for the commodity in question is 2.00.

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