Question

A consumer buys 80 units of a good at a price of 5 per unit suppose price elasticity of demand is (-) 2. At what price will he buy 64 units ? With Explanation ​

Answer 1

Original Price(P) = ₹5

Original Quantity(Q) = 80units

New Quantity(Q1) = 64units

New Price(P1) = ?

Price Elasticity of Demand = -2

PED= {∆Q÷∆P} × {P÷Q}

-2= {-16/∆P}×{5/80}

∆P= 0.5

As Quantity demanded is decreasing, Price will increase.

New Price = P + P1

= 5+0.5

= ₹5.5