if deltaP / P = 0.2 and price elasticity is -2 , calculate the percentage fall in demand. also calculate original expenditure if new expenditure is Rs. 180 at price of Rs. 6.
Answers
Given : deltaP / P = 0.2
price elasticity is -2
new expenditure is Rs. 180 at price of Rs. 6.
To Find : percentage fall in demand
original expenditure
Solution:
Price elasticity of demand. = Change in Demand / Change in price
Price elasticity of demand. = (dQ/Q) / (dP/P)
dP/P = 0.2
-2 = (dQ/Q) / 0.2
=> dQ/Q = -0.4
Decrease in Demand
percentage fall in demand. = 100 x 0.4 = 40 %
Original Demand = D
Original Price = P
New Demand = 0.6D =
New Price = 1.2P = 6 => P = 5
Original Expenditure = 5D
New Expenditure = 6 * 0.6D = 180 => D = 50
Original Expenditure = 5(50) = 250
percentage fall in demand. = 40 %
original expenditure = 250
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