If price of an article decreases from Rs. 25 to Rs. 20, quantity demanded increases from Q1 units to 1500 units. If point elasticity of demand is -1.25, find Q1?
A) 900 units B) 1200 units C) 1800 units D) 2000 units
Answers
Explanation:
☆ Formula
Point elasticity of demand =
Change in Quantity demanded ÷ change in price × Orginal Price ÷ Original Quantity.
☆ Given
1. Original price = rs. 25
New Price = rs. 20
Change in Price = Original - New
= 25 - 20
= 5
2. Original Quantity = Q1
New Quanity = 1500
Change in Quantity demanded = Original - New
= Q1 - 1500
3. Point elasticity of demand = -1.25
☆ Solution
Putting the given values in the formula
Point elasticity of demand =
Change in quantity demanded ÷ change in price × Orginal Price ÷ Original Quantity.
-1.25 = Q1 - 1500 ÷ 5 × 25 ÷ Q1
=) -1.25 = Q1 - 1500 × 25
5 Q1
=) -1.25 = Q1 - 1500 × 5
Q1
=) Q1 ( -1.25) = (Q1 - 1,500) 5
=) -1.25Q1 = 5Q1 - 7500
=) -1.25Q1 - 5Q1 = - 7500
=) - 6.25 Q1 = -7500
=) Q1 = -7500 ÷ -6.25
=) Q1 = 7500 ÷ 6.26
=) Q1 = 1200