Question

As price of a commodity falls from 7 rupees per kg to 5 per kg, the total expenditure on it increases from 3500 rupees to 6250 rupees. Find out the elasticity of demand.​

Answer 1

Answer:

Ed = (-) 5.25

Explanation:

Answer 2

The elasticity of demand is -5.25.

Given

• The price of a commodity falls from 7 rupees per kg to 5 per kg.
• The total expenditure on it increases from 3500 rupees to 6250 rupees.

To Find

The elasticity of demand

Solution

Elasticity of Demand = Percentage change in Quantity/ Percentage change in Price

Original Quantity = Original Expenditure/Original Price

= 3500/7 units

= 500 units

New Quantity = New Expenditure/New Price

= 6250/5 units

= 1250 units

Percentage change in Quantity

= Change in Quantity/ Original Quantity  X 100

= (1250 - 500)/500 X 100

= 750/500 X 100

= 150%

Percentage change in price = Change in price/ Original Price X 100

= (5 - 7)/7 X 100

= -2/7 X 100

= -200/7 %

Therefore, the Elasticity of Demand

Ed = 150%/-200/7 %

= -1050/200

= -5.25

Therefore, the elasticity of demand is -5.25.

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