Question

11. When the price of a good falls by 10% its quantity demanded rises from 40 units to 50 units. Calculate Price Elasticity of Demand by the percentage method. (AI 2007) (Ans. = 2.51​

Answer 1

Explanation:

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Answer 2

Price elasticity of demand is 2.5

Given - Price change percentage and change in quantity

Find - Price elasticity of demand

Solution - The price elasticity of demand is calculated by the formula -

Price elasticity of demand = percentage change in quantity demanded/percentage change in price

Percentage change in quantity = $\frac{change \: in \: price }{original \: price} \times 100$

Keep the values in formula to find the percentage change in quantity

Percentage change in quantity = $\frac{50 - 40}{50} \times 100$

Percentage change in quantity = $\frac{10}{40} \times 100$

Percentage change in quantity = 25%

As given in question, percentage change in price = 10%

Keep the values in formula to find price elasticity of demand

Price elasticity of demand = $\frac{25\%}{10\%}$

Price elasticity of demand = 2.5

Hence, the price elasticity of demand is 2.5

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