QUESTION
Q22) Suppose the price of movies seen at a theatre rises from ₹ 120 per person to ₹200 per person. The theatre manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the price elasticity of demand for movies? (Use Arc Elasticity Method)
Q22) Suppose the price of movies seen at a theatre rises from ₹ 120 per person to ₹200 per person. The theatre manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the price elasticity of demand for movies? (Use Arc Elasticity Method)
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Solution:
Using the arc elasticity of demand formula:
Where,
Q1 = Initial quantity demanded = 300 persons
Q2 = New quantity demanded = 200 persons
P1 = Initial price = ₹ 120 per person
P2 = New price = ₹ 200 per person
Substituting in the values, we get:
Since the elasticity of demand is negative, the demand for movies is price elastic.
Therefore, a 1% increase in the price of movies will result in more than a 1% decrease in the quantity demanded of movies.
So the correct answer is (b) 0.8.
Correct option is (b)