If the demand function for a good is given by Qx = 20 - 2Px, how much is the quantity demanded when the price is Rs 4/unit?
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Answer:
The price elasticity of demand is 2 % or 0.02
Explanation:
Demand function
qx = 20 - 2px
When the price is Rs 5
qx = 20 - 2 (5)
= 20 - 10
= 10
When price falls to Rs 3 from Rs 5, then quantity demand of x unit is:
qx = 20 - 2(3)
= 20 - 6
= 14
The formula of price elasticity of demand is:
= % change in quantity demanded / % change in price
= (14 - 10)% / (5 -3)%
= 4 / 2
= 2 % or 0.02
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