Calculate and comment on nature of price elasticity of demand, if, with a rise in price of Good X from ₹ 10 to ₹ 12, the quantity demanded falls by 40%.
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Initial Price (P0) = Rs 10
Final Price (P1) = Rs 12
Percentage change in quantity demanded = -30
Elasticity of demand = Percentage change in quantity demanded/percentage change in price
= -30/(12-10/10 x 100)
= 1.5
Elasticity of demand is greater than one. Therefore, demand for a good is elastic.
Final Price (P1) = Rs 12
Percentage change in quantity demanded = -30
Elasticity of demand = Percentage change in quantity demanded/percentage change in price
= -30/(12-10/10 x 100)
= 1.5
Elasticity of demand is greater than one. Therefore, demand for a good is elastic.
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