If the prices of a commodity increases from N8.00 to N10.00 and the demand decreases from 100 to 80…

Analyze the question

We are asked for the price elasticity of demand (PED) when price rises from N8 to N10 and quantity demanded falls from 100 to 80.

Concept

PED = % change in quantity demanded ÷ % change in price

In JAMB questions, the percentage change is usually calculated using the original (initial) values unless the midpoint method is specified.

Solution

• Change in quantity: 80 − 100 = −20
• % change in quantity = (−20 ÷ 100) × 100 = −20%

• Change in price: 10 − 8 = 2
• % change in price = (2 ÷ 8) × 100 = 25%

PED = −20% ÷ 25% = −0.8

Ignoring the negative sign (demand curves slope downward, so we take the absolute value), PED = 0.8.

Since 0.8 < 1, demand is inelastic.

Checking the midpoint method (for completeness)

• % change in Q = 20 ÷ 90 = 22.2%
• % change in P = 2 ÷ 9 = 22.2%
• PED = 1

This would give option A. The question gives no hint to use the midpoint formula, so 0.8 is the expected answer.

Answer: B (0.8)

Exam tip

Unless the question mentions "average" or "midpoint", use the starting values as the base. Remember the formula: PED = %ΔQ ÷ %ΔP. Also, if PED < 1, demand is inelastic; if PED > 1, demand is elastic.