Question

If Neil's elasticity of demand for pen is constantly 0.9, and he buys 4 pens when the price is Rs.1.50 per pen, how many will he buy when the price is Rs.1.00 per pen?

Answer 1

We know that Price elasticity of demand is

(-)Percentage change in quantity demanded

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Percentage change in price

Old Price = Rs 1.5

New Price = Rs 1.0

Old Qty = 4

New Qty = Q( to find)

Price elasticity constant at (-) 0.9 [We need to prefix the "minus" sign in the equation to solve it, as price and qty demanded have a negative relationship according to Law of Demand.]

Hence  Percentage change in qty demanded is = Q-4/4

and percentage change of price is = 1 - 1.5 / 1.5

Therefore, upon solving the equation we find that Q = 5.2