Question

A consumer purchases 10 units of a commodity when the price is Rs 10 per unit. He can purchase 8

units of the commodity with an expenditure of Rs 80. Calculate the price elasticity of demand using

the percentage method.


with proper solution ​

Answer 1

Given :

Initial Price = ₹100 ( P )

Initial Quantity = 10 ( q )

Change in Price = 100 - 80 = 20 ( ∆P )

Change in Quantity = 10 - 8 = 2 ( ∆q )

To Calculate :

The Price Elasticity of demand.

Solution :

Percentage Method

$\: \: \: \: \: \: \: \: \: \: \: {\underline{\sf{e = \frac{ \Delta \: q}{ \Delta \: P } \times \frac{P}{q} }}}$

Where,

P = Initial Price

q = Initial Quantity

∆P = Change in Price

∆q = Change in Quantity

$\sf\to \: e = \frac{ \Delta \: q}{ \Delta \: P} \times \frac{P}{q}$

$\sf\to \: \frac{2}{20} \times \frac{100}{80}$

$\sf\to \: \frac{1}{10} \times \frac{5}{4}$

$\sf\to \: \frac{5}{40}$

$\sf\to \: 0.1$

$\therefore \sf Price \: Elasticity \: of \: Demand \: (e) \: = \: 0.1$

$\sf Since, \: e < 1 \: it \: is \: Inelastic \: Demand$