Question : Assertion: When the price of a good increases by 10%, and the quantity demanded decreases by 5%, the price elasticity of demand is -0.5.
Reason: Price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price.
Option 1: Both the assertion and reason are correct and related.
Option 2: Both the assertion and reason are correct but not related.
Option 3: The assertion is correct, but the reason is incorrect.
Option 4: The assertion is incorrect, but the reason is correct.
Correct Answer: Both the assertion and reason are correct and related.
Solution : The correct answer is (A) Both the assertion and reason are correct and related.
The assertion states that when the price of a good increases by 10% and the quantity demanded decreases by 5%, the price elasticity of demand is -0.5. This is correct. The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the percentage change in quantity demanded is -5% (-5%/100% = -0.05) and the percentage change in price is 10% (10%/100% = 0.1). Therefore, the price elasticity of demand is -0.05/0.1 = -0.5, as stated in the assertion.
The reason states that price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. This is also correct and aligned with the definition of price elasticity of demand.
Hence, both the assertion and the reason are correct and related.
