Question

demand of quantity increases by 20 % because of a 10% decrease in the price o commodity .find out the elasticity of demand of that commodity.

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Answer 1

Explanation:

Let the original demand and price be 100 each

Increase in demand = 20% of rs 100

= rs. 20

Decrease in price = 10% of rs 100

= rs. 10

ep = ♢Q ÷ ♢ P × P ÷ Q ( ♢ = change)

= 20 ÷ 10 × 100 ÷ 100

= 2

Therefore elasticity of demand = 2

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Answer 2

Inelastic demand occurs when changes in price cause a disproportionately small change in quantity demanded. For example, a good with inelastic demand might see its price increase by 30%, but demand drop by only 10% as a result.