Answer: b). Elasticity of demand is 1.2
Explanation:
Elasticity of demand measure the responsiveness of demand to a change in the price of the good.
It can be measures using the point method,
[tex]e=\frac{Change in Quantity}{Avg. Quantity} * \frac{Avg. Price}{Change in Price}[/tex]
[tex]e=\frac{176,000 - 224,000}{\frac{224,000+176,000}{2} } *\frac{\frac{16.20+19.80}{2} }{19.80 - 16.20}[/tex]
[tex]e=\frac{-48,000}{200,000} *\frac{18}{3.6}[/tex]
[tex]e=-0.24*5[/tex]
[tex]e=-1.2[/tex]
Elasticity of demand is 1.2.
