QUESTION
Q7) Suppose a department store has a sale on its silverware. If the price of a plate-setting is reduced from ₹ 300 to ₹ 200 and the quantity demanded increases from 3,000 plate-settings to 5,000 plate-settings, what is the price elasticity of demand for silverware?

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Solution:
We can use the formula for price elasticity of demand to calculate the elasticity in this scenario:
Price elasticity of demand = percentage change in quantity demanded / percentage change in price

To calculate the percentage change in quantity demanded, we use the formula:

Percentage change in quantity demanded = ((new quantity demanded - old quantity demanded) / old quantity demanded) x 100%

Using the values given in the question, we can calculate the percentage change in quantity demanded as follows:

Percentage change in quantity demanded = ((5,000 - 3,000) / 3,000) x 100% = 66.67%

To calculate the percentage change in price, we use the formula:

Percentage change in price = ((new price - old price) / old price) x 100%

Using the values given in the question, we can calculate the percentage change in price as follows:

Percentage change in price = ((200 - 300) / 300) x 100% = -33.33%

Note that the negative sign indicates a decrease in price.

Substituting these values into the formula for price elasticity of demand, we get:

Price elasticity of demand = percentage change in quantity demanded / percentage change in price = 66.67% / (-33.33%)

= -2

Since the elasticity value is negative, we know that the demand for silverware is elastic (i.e., a decrease in price leads to an increase in quantity demanded). To get the absolute value of the elasticity, we can ignore the negative sign. Therefore, the price elasticity of demand for silverware is: Price elasticity of demand = 2

So the answer is not one of the options provided in the question. Answer given in module is option (b)
Correct option is (b)