Question

a 5% fall in the price of x leads to a 10% rise in demand for x at 2% rise in the price of y let's to a 6% fall in demand for y calculate elasticity of demand ofx and Y ​

Answer 1

Explanation:

% change in quantity

Elasticity of x,y=--------------------------

% change in price

X:

$10 \div 5 = 2$

Y:

$6 \div 2 = 3$

Answer 2

Elasticity of demand for good X is 2.

Elasticity of demand for good Y is 3.

• Elasticity of demand or price elasticity of demand (because we are evaluating responsiveness of demand against change in price) = percentage change in quantity demanded/percentage change in price

• For good X

percentage fall in price =5%

percentage rise in demand = 10%

price elasticity of demand = 10/5 = 2

• For good Y

percentage rise in price = 2%

percentage fall in demand = 6%

Price elasticity of demand = 6/2 = 3

• Despite fall in demand we do not take negative sign because we only want to measure the reponsiveness of demand to a change in price.
• Both the goods X and Y have elastic demand as elasticity is greater than one.