A consumer buys 1000 units of a good at a price of Rs. 10 per unit. When the price falls he buys
1400 units. If the price elasticity of demand is (-) 2, what is the new price.
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Explanation:
Initial price (P)=Rs.10
Fall in price by 20 per cent =10×10020=Rs.2
New price (P1)=Rs.10−Rs.2=Rs.8
Price (Rs.)Expenditure (Rs.)Quantity Demanded (Units)101,000101,000=10088008800=100Percentage change in quantity demanded =Q△Q×100=100100−100×100=1000×100=0
Price elasticity of demand (Ed)=(−)Percentage change in pricePercentage change in quantity demanded
=(−)20%0
=0
Price elasticity of demand =0 (zero
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