If the prices of a commodity increases from N8.00 to N10.00 and the demand decreases from 100 to 80 respectively, what is the price elasticity of…

Step 1: Understand the formula
Price Elasticity of Demand (PED) = (% change in quantity demanded) / (% change in price)

Step 2: Calculate percentage change in quantity demanded
Initial quantity = 100 units
New quantity = 80 units
Change = 80 – 100 = -20 units
% change = (Change / Initial) × 100 = (-20 / 100) × 100 = -20%

Step 3: Calculate percentage change in price
Initial price = ₦8.00
New price = ₦10.00
Change = ₦10 – ₦8 = ₦2
% change = (Change / Initial) × 100 = (2 / 8) × 100 = 25%

Step 4: Calculate elasticity
PED = |-20%| / 25% = 20% / 25% = 0.8
(We use absolute value because elasticity is typically expressed as a positive number)

Interpretation: PED = 0.8 means demand is inelastic (less than 1). When price increased by 25%, quantity demanded fell by only 20%. Consumers are not very sensitive to price changes for this commodity.