Question

A consumer buys a certain quantity of a good at rupees 10 per unit. when price falls to rupees 8 per unit she balance 40% more quantity. Calculate price elasticity of demand.

Answer 1

Explanation:

Suppose the consumer initially buys 100 units of the good.

New quantity =100+40 per cent of 100=140

P=Rs.10;P

1

=Rs.9;△P=P

1

−P=Rs.8−Rs.10=(−)Rs.2

Q=100 units;Q

1

=140 units;△Q=Q

1

−Q=(140−100)units=40 units

Price elasticity of demand (E

d

)=(−)

Q

P

×

△P

△Q

=(−)

100

10

×

−2

40

=2

Percentage change in price =

P

△P

×100

=

10

8−10

×100=

10

−2

×100=(−)20%

Price elasticity of demand (E

d

)=(−)

Percentage change in price

Percentage change in quantity demanded

=(−)

(−)20%

40%

=2

Price elasticity of demand =2

Answer 2

Question:-

A consumer buys a certain quantity of a good at rupees 10 per unit. when price falls to rupees 8 per unit she balance 40% more quantity. Calculate price elasticity of demand.

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