JAMB Economics 2012 Paper

Concept:Price elasticity of demand measures how responsive quantity demanded is to a change in price.Explanation:From the diagram, the original price is $50$ and the original quantity demanded is $500$.When the price rises to $70$, quantity demanded falls to $400$.Change in quantity demanded $= 500 - 400 = 100$ units.Percentage change in quantity demanded $= \dfrac{100}{500} \times 100 = 20\%$.Change in price $= 70 - 50 = 20$.Percentage change in price $= \dfrac{20}{50} \times 100 = 40\%$.Price elasticity of demand $= \dfrac{\text{\% change in quantity demanded}}{\text{\% change in price}} = \dfrac{20}{40} = 0.5$.We ignore the negative sign when stating the coefficient, so the demand is inelastic.Answer:D. $0.5$