Question : Assertion: When the price of a product increases by 10% and its quantity demanded decreases by 10%, the price elasticity of demand is -1.

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 product increases by 10% and its quantity demanded decreases by 10%, the price elasticity of demand is -1. This is correct. 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 (-10%) divided by the percentage change in price (+10%) equals -1. This indicates that the demand for the product is unit elastic, meaning the percentage change in quantity demanded is equal to the percentage change in price.

The reason provided states that price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. This is correct and supports the calculation used in the assertion. Price elasticity of demand quantifies the responsiveness of quantity demanded to changes in price, and it is indeed calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Therefore, both the assertion and reason are correct and related. The price elasticity of demand is -1 when the price of a product increases by 10% and its quantity demanded decreases by 10%, as explained by the reason.