Question

5% fall in price of a good leads to 10% rise in its demand a consumer buys 40 units of a good at a price of 10 per units how many units will he buy at a price of 12 per unit calculate​

Answer 1

Answer:new quantity = 26 unit , at new price $12

Explanation:

Price elasticity of demand= (% Change in Q.D)/(% Chamge in Price)

elasticity= -2

Interpretation of price elasticity: For every 1% increase/decrease in prices, quantity demanded will decrease/increase by 2%.

Using above interpretation:

Percentage increase in prices= 20%

Percentage Decrease in Quantity demanded= 40%

By simple algebra New Q.D= 26 Unit